Matching structure and bargaining outcomes in buyer-seller networks

Abstract

We examine the relationship between the matching structure of a bipartite (buyer-seller) network and the (expected) shares of the unit surplus that each connected pair in this network can create. We show that in different bargaining environments, these shares are closely related to the Gallai-Edmonds Structure Theorem. This theorem characterizes the structure of maximum matchings in an undirected graph. We show that the relationship between the (expected) shares and the Structure Theorem is not an artefact of a particular bargaining mechanism or trade centralization. However, this relationship does not necessarily generalize to non-bipartite networks or to networks with heterogeneous link values.