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An Alternating-Offers Model of Multilateral Negotiations

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  • Charles J. Thomas

    ()
    (Economic Science Institute & Argyros School of Business and Economics)

Abstract

I develop an infinite-horizon alternating-offers model of multilateral negotiations, a common means of exchange whose strategic complexity has hindered previous modeling efforts. Multilateral negotiations occur in numerous settings in which one party wishes to trade with one of several others, but for concreteness I consider a buyer facing multiple sellers offering potentially different amounts of surplus to be split. The basic model provides surprising insights about introducing competition to an initially bilateral setting, while straightforward extensions provide empirical predictions about how the buyer’s choice of conducting procurement via multilateral negotiations or auctions is affected by factors including the number of sellers, uncertainty when making the choice, and costs of participating in the procurement process. More generally the model provides a tractable foundation for analyzing strategic problems in settings featuring multilateral negotiations.

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Bibliographic Info

Paper provided by Chapman University, Economic Science Institute in its series Working Papers with number 12-31.

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Length: 36 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:chu:wpaper:12-31

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  1. Chatterjee, K. & Dutta, B., 1994. "Rubinstein auctions: On competition for bargaining partners," Discussion Paper 1994-57, Tilburg University, Center for Economic Research.
  2. Milgrom, Paul, 1989. "Auctions and Bidding: A Primer," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 3-22, Summer.
  3. Andrew F. Daughety & Jennifer F. Reinganum, 1991. "Endogenous Availability in Search Equilibrium," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 287-306, Summer.
  4. Ebbe Groes & Torben Tranæs, 1989. "Sequential Bargaining in a Market with One Seller and Two Different Buyers," Discussion Papers 89-22, University of Copenhagen. Department of Economics.
  5. Kennan, J. & Wilson, R., 1991. "Bargaining with Private Information," Working Papers 90-01rev, University of Iowa, Department of Economics.
  6. Kim, Jinwoo & Che, Yeon-Koo, 2004. "Asymmetric information about rivals' types in standard auctions," Games and Economic Behavior, Elsevier, vol. 46(2), pages 383-397, February.
  7. 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.
  8. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 52(6), pages 1351-64, November.
  9. Jeremy Bulow & Paul Klemperer, 2009. "Why Do Sellers (Usually) Prefer Auctions?," Economics Papers 2009-W05, Economics Group, Nuffield College, University of Oxford.
  10. Andrew F. Daughety & Jennifer F. Reinganum, 1992. "Search Equilibrium with Endogenous Recall," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 184-202, Summer.
  11. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  12. Chatterjee, Kalyan & Lee, Ching Chyi, 1998. "Bargaining and Search with Incomplete Information about Outside Options," Games and Economic Behavior, Elsevier, vol. 22(2), pages 203-237, February.
  13. Binmore, Ken & Shaked, Avner & Sutton, John, 1989. "An Outside Option Experiment," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 753-70, November.
  14. Charles J. Thomas & Bart J. Wilson, 2008. "Horizontal Product Differentiation in Auctions and Multilateral Negotiations," Working Papers 08-03, Chapman University, Economic Science Institute.
  15. Avner Shaked, 1994. "Opting out: bazaars versus "hi tech" markets," Investigaciones Economicas, Fundación SEPI, vol. 18(3), pages 421-432, September.
  16. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  17. David McAdams & Michael Schwarz, 2007. "Credible Sales Mechanisms and Intermediaries," American Economic Review, American Economic Association, vol. 97(1), pages 260-276, March.
  18. Charles J. Thomas & Bart J. Wilson, 2005. "Verifiable Offers and the Relationship Between Auctions and Multilateral Negotiations," Economic Journal, Royal Economic Society, vol. 115(506), pages 1016-1031, October.
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