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Payoff Uncertainty, Bargaining Power, and the Strategic Sequencing of Bilateral Negotiations

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  • Silvana Krasteva
  • Huseyin Yildirim
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    Abstract

    This paper investigates the sequencing choice of a buyer who negotiates with the sellers of two complementary objects with uncertain payoffs. We show that the sequencing matters to the buyer only when equilibrium trade can be inefficient. In this case, the buyer begins with the less powerful seller if the sellers have sufficiently diverse bargaining powers. If, however, both sellers are strong bargainers, then the buyer begins with the stronger of the two. For either choice, the buyer’s sequencing (weakly) increases the social surplus. Our analysis further reveals that it is sometimes optimal for the buyer to raise her own cost of acquisition to better manage the supplier competition. As such, we find that the buyer may commit to paying the sellers a minimum price strictly above the marginal cost; and that the buyer may outsource an input even though it can be made in-house. Finally, we identify the first - and second - mover advantages in negotiations for the sellers.

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    Bibliographic Info

    Paper provided by Duke University, Department of Economics in its series Working Papers with number 11-17.

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    Length: 32
    Date of creation: 2011
    Date of revision:
    Handle: RePEc:duk:dukeec:11-17

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    Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
    Phone: (919) 660-1800
    Fax: (919) 684-8974
    Web page: http://econ.duke.edu/

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    Keywords: negotiation; sequencing; bargaining power; coordination;

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