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Break-up fees and bargaining power in sequential contracting

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  • Marx, Leslie M.
  • Shaffer, Greg

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.

Suggested Citation

  • Marx, Leslie M. & Shaffer, Greg, 2010. "Break-up fees and bargaining power in sequential contracting," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 451-463, September.
    • Handle: RePEc:eee:indorg:v:28:y:2010:i:5:p:451-463
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    Cited by:

    1. Claudia M. Landeo & Kathryn E. Spier, 2016. "Stipulated Damages as a Rent-Extraction Mechanism: Experimental Evidence," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 172(2), pages 235-273, June.
    2. Yonezawa, Koichi & Gomez, Miguel I. & Richards, Timothy J., 2018. "The Robinson-Patman Act and Vertical Relationships in Food Retailing," 2018 Annual Meeting, August 5-7, Washington, D.C. 274204, Agricultural and Applied Economics Association.
    3. Silvana Krasteva & Huseyin Yildirim, 2011. "Payoff Uncertainty, Bargaining Power, and the Strategic Sequencing of Bilateral Negotiations," Levine's Working Paper Archive 786969000000000208, David K. Levine.
    4. Johannes Münster & Markus Reisinger, 2021. "Sequencing Bilateral Negotiations with Externalities," ECONtribute Discussion Papers Series 096, University of Bonn and University of Cologne, Germany.
    5. Cecilia Vergari & Luigi Filippini, 2023. "Innovation Diffusion and Strategic Outside Option in a Bargaining Game," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 63(1), pages 41-71, August.
    6. Rafael Becerril-Arreola & Randolph E. Bucklin & Raphael Thomadsen, 2021. "Effects of Income Distribution Changes on Assortment Size in the Mainstream Grocery Channel," Management Science, INFORMS, vol. 67(9), pages 5878-5900, September.
    7. Thomas, Charles J., 2018. "An alternating-offers model of multilateral negotiations," Journal of Economic Behavior & Organization, Elsevier, vol. 149(C), pages 269-293.
    8. 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.
    9. Liang Guo & Ganesh Iyer, 2013. "Multilateral Bargaining and Downstream Competition," Marketing Science, INFORMS, vol. 32(3), pages 411-430, May.

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