Strategic Delay in Networked Bargaining

We study decentralized markets involving producers and consumers that are facilitated by middlemen. We do this by analyzing a non-cooperative networked bargaining game. We assume a complete information set-up wherein all the agents know the structure of the network, the values of the consumers and the transaction costs involved but allow for some search friction when either producers or consumers trade with middlemen. In such a setting we show that sunk cost problems and a heterogeneous network can give rise to delay or failure in negotiation, and therefore, reduce the total trade capacity of the network. In the limiting regime of extremely patient agents, we provide a sharp characterization of the trade pattern and the segmentation of these markets.