Bargaining and Networks in a Gas Bilateral Oligopoly

In the context of international gas markets, we investigate the interaction between price formation and communication networks in a bilateral duopoly with heterogeneous buyers. Given a particular buyers-sellers network graph, prices are formed as the outcome of dynamic decentralized negotiations among traders. We characterize, for any network structure, the full set of sub-game perfect Nash equilibria in pure and stationary strategies (PSSPNE) of the non-cooperative bargaining game with random order of proposals and simultaneous responses. Depending on the inter-temporal discount factor and the dispersion of reservation values across buyers, negotiations may lead, even in a completely connected buyers-sellers network, to multiple equilibria, co-existence of different prices, delays in trade and inefficient allocations. The endogenous bargaining power of each trader as a function of her position in the communication network is derived by comparing traders' payoffs across networks.