Bargaining over a common categorisation

Abstract

Two agents endowed with different categorisations engage in bargaining to reach an understanding and agree on a common categorisation. We model the process as a simple non-cooperative game and demonstrate three results. When the initial disagreement is focused, the bargaining process has a zero-sum structure. When the disagreement is widespread, the zero-sum structure disappears and the unique equilibrium requires a retraction of consensus: two agents who individually associate a region with the same category end up rebranding it under a different category. Finally, we show that this last equilibrium outcome is Pareto dominated by a cooperative solution that avoids retraction; that is, the unique equilibrium agreement may be inefficient.