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Multilateral Bargaining With Concession Costs

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  • 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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  1. Olivier Compte & Philippe Jehiel, 2004. "Gradualism in Bargaining and Contribution Games," Review of Economic Studies, Wiley Blackwell, vol. 71(4), pages 975-1000, October.
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Citations

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Cited by:
  1. Beatriz Dominguez & Juan-José Ganuza & Gerard Llobet, 2006. "R&D In The Pharmaceutical Industry: A World Of Small Innovation," Working Papers wp2006_0601, CEMFI.
  2. Jose Ceron & Javier Suarez, 2006. "Hot And Cold Housing Markets: International Evidence," Working Papers wp2006_0603, CEMFI.
  3. 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.
  4. Elizalde, Abel & Repullo, Rafael, 2004. "Economic and Regulatory Capital: What is the Difference?," CEPR Discussion Papers 4770, C.E.P.R. Discussion Papers.
  5. Aleix Calveras & Juan José Ganuza & Gerard Llobet, 2005. "Regulation and opportunism: How much activism do we need?," Economics Working Papers 935, Department of Economics and Business, Universitat Pompeu Fabra.
  6. Camera, Gabriele & Selcuk, Cemil, 2006. "Bilateral Matching and Latin Squares," Purdue University Economics Working Papers 1190, Purdue University, Department of Economics.
  7. 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.
  8. Breitmoser, Yves, 2011. "Binomial menu auctions in government formation," MPRA Paper 28576, University Library of Munich, Germany.

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