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Multilateral Bargaining With Concession Costs

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Author Info

  • Guillermo Caruana

    ()

  • Liran Einav

    ()

  • Daniel Quint

    () (CEMFI, Centro de Estudios Monetarios y Financieros)

Abstract

This paper presents a new non-cooperative approach to multilateral bargaining. We consider a demand game with the following additional ingredients: (i) There is an exogenous deadline, by which bargaining has to end; (ii) Prior to the deadline, players may sequentially change their demands as often as they like; (iii) Changing one's demand is costly, and this cost increases as the deadline gets closer. The game has a unique subgame perfect equilibrium prediction in which agreement is reached immediately and switching costs are avoided. Moreover, this equilibrium is invariant to the particular order and timing in which players make demands. This is important, as multilateral bargaining models are sometimes too sensitive to these particular details. In our context, players with higher concession costs obtain higher shares of the pie; their increased bargaining power stems from their ability to credibly commit to a demand earlier. We discuss how the setup and assumptions are a reasonable description for certain real bargaining situations.

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Bibliographic Info

Paper provided by CEMFI in its series Working Papers with number wp2004_0415.

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Date of creation: Sep 2004
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Handle: RePEc:cmf:wpaper:wp2004_0415

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Keywords: Bargaining; commitment; switching costs.;

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References

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  1. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
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Citations

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Cited by:
  1. Díaz-Giménez, Javier & Pijoan-Mas, Josep, 2006. "Flat Tax Reforms in the US: A Boon for the Income Poor," CEPR Discussion Papers 5812, C.E.P.R. Discussion Papers.
  2. Abel Elizalde & Rafael Repullo, 2004. "Economic And Regulatory Capital. What Is The Difference?," Working Papers wp2004_0422, CEMFI.
  3. Beatriz Domínguez & Juan José Ganuza & Gerard Llobet, 2005. "R&D in the pharmaceutical industry: A world of small innovations," Economics Working Papers 936, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Jose Ceron & Javier Suarez, 2006. "Hot And Cold Housing Markets: International Evidence," Working Papers wp2006_0603, CEMFI.
  5. Camera, Gabriele & Selcuk, Cemil, 2006. "Bilateral Matching and Latin Squares," Purdue University Economics Working Papers 1190, Purdue University, Department of Economics.
  6. Breitmoser, Yves, 2011. "Binomial menu auctions in government formation," MPRA Paper 28576, University Library of Munich, Germany.
  7. Aleix Calveras & Juan-José Ganuza & Gerard Llobet, 2005. "Regulation And Opportunism: How Much Activism Do We Need?," Working Papers wp2005_0508, CEMFI.
  8. Gabriele Camera & Cemil Selcuk, 2010. "Multi-player Bargaining with Endogenous Capacity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 637-653, July.

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