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Break-up fees and bargaining power in sequential contracting

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  • Marx, Leslie M.
  • Shaffer, Greg
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    Abstract

    When a buyer negotiates in sequence with two potential sellers of a good, the outcome of each negotiation depends on all three players' bargaining powers. Assuming all parties are symmetrically informed, we find that the first seller's payoff is increasing in his own and the second seller's bargaining power. On the other hand, the second seller's payoff is decreasing in the first seller's bargaining power and, in some cases, also in his own bargaining power. We characterize when contracts will contain break-up fees. All results extend to the case of a seller negotiating in sequence with two buyers.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Journal of Industrial Organization.

    Volume (Year): 28 (2010)
    Issue (Month): 5 (September)
    Pages: 451-463

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    Handle: RePEc:eee:indorg:v:28:y:2010:i:5:p:451-463

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    Web page: http://www.elsevier.com/locate/inca/505551

    Related research

    Keywords: Rent shifting Penalty clauses Buyer-seller contracts Buyer power;

    References

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    1. Robert Marshall & Antonio Merlo, 1996. "Pattern bargaining," Staff Report 220, Federal Reserve Bank of Minneapolis.
      • Robert C. Marshall & Antonio Merlo, 2004. "Pattern Bargaining," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 239-255, 02.
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    Cited by:
    1. Krasteva, Silvana & Yildirim, Huseyin, 2012. "On the role of confidentiality and deadlines in bilateral negotiations," Games and Economic Behavior, Elsevier, vol. 75(2), pages 714-730.
    2. Charles J. Thomas, 2012. "An Alternating-Offers Model of Multilateral Negotiations," Working Papers 12-31, Chapman University, Economic Science Institute.

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