Disagreement in Markets with Matching and Bargaining

Abstract

This paper develops an explanation of why bargainers often terminate negotiations in disagreement in spite of positive expected gains from continued negotiation. The key to the analysis is a model which embeds bargaining activity within a market. Agents are continually faced with the choice between continuing to bargain with an existing partner or searching for a new partner. Bargainers may then terminate negotiations without an agreement, in spite of positive expected gains from continued bargaining, because seeking a new bargaining partner promises a higher return.