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Alternating-offer games with final-offer arbitration

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  • Rong, Kang

Abstract

I analyze an alternating-offer model that integrates the common practice of having an arbitrator determine the outcomes if both playersʼ offers are rejected. I assume that the arbitrator uses final-offer arbitration (as in professional baseball). I find that if the arbitrator does not excessively favor one player, then the unique subgame-perfect equilibrium always coincides with the subgame-perfect equilibrium outcome in Rubinsteinʼs infinite-horizon alternating-offer game. However, if the arbitrator sufficiently favors the player making the initial offer, then delay occurs in equilibrium.

Suggested Citation

  • Rong, Kang, 2012. "Alternating-offer games with final-offer arbitration," Games and Economic Behavior, Elsevier, vol. 76(2), pages 596-610.
    • Handle: RePEc:eee:gamebe:v:76:y:2012:i:2:p:596-610
    DOI: 10.1016/j.geb.2012.07.013
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    References listed on IDEAS

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    8. Yildiz, Muhamet, 2011. "Nash meets Rubinstein in final-offer arbitration," Economics Letters, Elsevier, vol. 110(3), pages 226-230, March.
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    10. Rong Kang, 2012. "An Axiomatic Approach to Arbitration and its Application in Bargaining Games," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 12(1), pages 1-34, September.
    11. Manzini, Paola & Mariotti, Marco, 2001. "Perfect Equilibria in a Model of Bargaining with Arbitration," Games and Economic Behavior, Elsevier, vol. 37(1), pages 170-195, October.
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    Cited by:

    1. Guha, Brishti, 2019. "Malice and patience in Rubinstein bargaining," Research in Economics, Elsevier, vol. 73(3), pages 264-270.
    2. King King Li & Kang Rong, 2020. "The gambling effect of final-offer arbitration in bargaining," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 69(2), pages 475-496, March.
    3. Arnald J. Kanning, 2020. "Agreement by conduct as a coordination device," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 19(1), pages 77-90, June.
    4. Kang Rong, 2015. "Bargaining with split-the-difference arbitration," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 45(2), pages 441-455, September.
    5. William Thomson, 2022. "On the axiomatic theory of bargaining: a survey of recent results," Review of Economic Design, Springer;Society for Economic Design, vol. 26(4), pages 491-542, December.
    6. Hanato, Shunsuke, 2019. "Simultaneous-offers bargaining with a mediator," Games and Economic Behavior, Elsevier, vol. 117(C), pages 361-379.
    7. Rong Kang, 2012. "An Axiomatic Approach to Arbitration and its Application in Bargaining Games," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 12(1), pages 1-34, September.

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    More about this item

    Keywords

    Alternating-offer game; Final-offer arbitration; Rubinstein equilibrium; Delay in bargaining;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

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