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Optimal value commitment in bilateral bargaining

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  • Britz, Volker
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    Abstract

    We study the role of commitment as a source of strategic power in a non-cooperative bargaining game. Two impatient players bargain about the division of a shrinking surplus under a standard bargaining protocol in discrete time with constant recognition probabilities. Before bargaining, a player can commit to some part of the surplus. This commitment remains binding until the surplus has shrunk below the amount that the player is committed to. Intuitively, one cannot remain committed to something which has become impossible. The model offers insight on the relative importance of proposal power and commitment for the bargaining outcome. In a version of the game where both players may simultaneously choose their commitments, the equal split emerges from within a range of equilibrium divisions as a focal point which is robust to changes in the model parameters.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0899825612001613
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    Bibliographic Info

    Article provided by Elsevier in its journal Games and Economic Behavior.

    Volume (Year): 77 (2013)
    Issue (Month): 1 ()
    Pages: 345-351

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    Handle: RePEc:eee:gamebe:v:77:y:2013:i:1:p:345-351

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    Web page: http://www.elsevier.com/locate/inca/622836

    Related research

    Keywords: Strategic bargaining; Commitment; Subgame perfect equilibrium;

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    References

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    1. Muthoo, Abhinay, 1992. "Revocable Commitment and Sequential Bargaining," Economic Journal, Royal Economic Society, vol. 102(411), pages 378-87, March.
    2. Muthoo, Abhinay, 1996. "A Bargaining Model Based on the Commitment Tactic," Journal of Economic Theory, Elsevier, vol. 69(1), pages 134-152, April.
    3. Fershtman Chaim & Seidmann Daniel J., 1993. "Deadline Effects and Inefficient Delay in Bargaining with Endogenous Commitment," Journal of Economic Theory, Elsevier, vol. 60(2), pages 306-321, August.
    4. Crawford, Vincent P, 1982. "A Theory of Disagreement in Bargaining," Econometrica, Econometric Society, vol. 50(3), pages 607-37, May.
    5. Tore Ellingsen & Topi Miettinen, 2008. "Commitment and Conflict in Bilateral Bargaining," American Economic Review, American Economic Association, vol. 98(4), pages 1629-35, September.
    6. Kambe, Shinsuke, 1999. "Bargaining with Imperfect Commitment," Games and Economic Behavior, Elsevier, vol. 28(2), pages 217-237, August.
    7. D. Abreu & F. Gul, 1998. "Bargaining and Reputation," Princeton Economic Theory Papers 00s9, Economics Department, Princeton University.
    8. Li, Duozhe, 2007. "Bargaining with history-dependent preferences," Journal of Economic Theory, Elsevier, vol. 136(1), pages 695-708, September.
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