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Credible Comparisons in Multi-Issue Bargaining

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  • Archishman Chakraborty

    (Baruch College CUNY)

  • Rick Harbaugh

    (Claremont McKenna College)

Abstract

We find that bargaining over multiple issues as a bundle allows for credible cheap talk on the relative importance of the issues even when interests are directly opposed on each issue. This communication increases the chance of agreement by allowing the offerer to concede more on the issue of greater importance to the offeree. In contrast, if the issues are bargained over separately we find that the offeree will lie about which issue is of greater importance. The communication gains from bundling are in addition to the gains from bundling previously identified in the monopoly pricing literature. Applied to negotiations between an executive and a legislature, our results imply that bundling multiple issues in a single bill with no line-item veto increases communication and can benefit both the legislature and, in many cases, the executive as well.

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Bibliographic Info

Paper provided by Claremont Colleges in its series Claremont Colleges Working Papers with number 2002-04.

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Date of creation: Apr 2002
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Handle: RePEc:clm:clmeco:2002-04

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Keywords: bundling; bargaining; cheap talk; veto;

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  1. Armstrong, M., 1996. "Price discrimination by a many-product firm," Discussion Paper Series In Economics And Econometrics 9628, Economics Division, School of Social Sciences, University of Southampton.
  2. McAfee, R Preston & McMillan, John & Whinston, Michael D, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 371-83, May.
  3. Matthews, Steven A, 1989. "Veto Threats: Rhetoric in a Bargaining Game," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 347-69, May.
  4. Adams, William James & Yellen, Janet L, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, MIT Press, vol. 90(3), pages 475-98, August.
  5. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November.
  6. Yannis Bakos & Erik Brynjolfsson, 1999. "Bundling Information Goods: Pricing, Profits, and Efficiency," Management Science, INFORMS, vol. 45(12), pages 1613-1630, December.
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