Price indeterminacy and bargaining in a market with indivisibilities

Abstract

We consider an exchange market for an indivisible, heterogeneous good where pairs of buyers and sellers bargain over prices in different transactions. A stable outcome in one negotiation cannot be uniquely determined by the outcome of other negotiations, but the result of those transactions has influence through endogenously determined outside options. We prove existence of equilibria with the property that no agent wished to rebargain. These bargaining equilibria form a subset of the set of Walrasian equilibria. In a replicated market all Walrasian equilibria are already stable under rebargaining. A bargaining process is shown to converge to the set of equilibria.