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 the communication structure conveyed by 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 noncooperative 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, coexistence of di¤erent prices, delays in trade and ine¢ cient allocations. The endogenous bargaining power of each trader as a function of her position in the communication network is derived by comparing traders’payo¤s across networks. Model’s predictions are then discussed in view of the empirical evidence on negotiations within infrastructural networks international gas markets above all and of the potential regulation policy implications.