The Dynamics of Bargaining Postures: The Role of a Third Party
AbstractIn many real world negotiations, from wage contract bargaining to product liability disputes, the bargaining parties often interact repeatedly and have the option of seeking outside judgement. This paper studies a model of repeated bargaining with a third party to analyze how and why bargaining postures endogenously evolve over time. A privately informed long-lived player bargains with a sequence of short-lived players, one at a time. Should the players fail to reach an agreement, an unbiased yet imperfect third party is called upon to make a judgement. The uninformed short-lived players learn through two channels: observed behavior of the informed player (\soft" information) and, if any, verdicts of the third party (\hard" information). The long-lived player wants to guard his private information by bargaining tough but at the expense of more information disclosure from the third party. As a result of the strategic use of these two sources of information, the players' bargaining postures change as the uninformed players' beliefs evolve. Interestingly, as third party information becomes more precise, the players adopt tough bargaining postures for a wider range of beliefs. Many repeated bargaining problems can be analyzed in this framework. In particular, the equilibrium dynamics provide an explanation for the puzzling contrast between the bargaining postures of Merck and Pfizer in their recent high-profile product liability litigations. The results also help us understand several other phenomena documented in the related literature.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 09-001.
Length: 45 pages
Date of creation: 04 Nov 2008
Date of revision:
bargaining posture; repeated bargaining; third party information; reputation;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- George J. Mailath & Larry Samuelson, .
"Who Wants a Good Reputation?,"
Penn CARESS Working Papers
a3e3219aee004bd237f8112f9, Penn Economics Department.
- George J. Mailath & Larry Samuelson, 2000. "Who Wants a Good Reputation?," CARESS Working Papres sell-rep, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
- George J. Mailath & Larry Samuelson, . ""Who Wants a Good Reputation?''," CARESS Working Papres 98-12, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
- Mailath,G.J. & Samuelson,L., 1998. "Who wants a good reputation?," Working papers 19, Wisconsin Madison - Social Systems.
- Kremer, Ilan & Skrzypacz, Andrzej, 2007. "Dynamic signaling and market breakdown," Journal of Economic Theory, Elsevier, vol. 133(1), pages 58-82, March.
- Kreps, David M. & Milgrom, Paul & Roberts, John & Wilson, Robert, 1982.
"Rational cooperation in the finitely repeated prisoners' dilemma,"
Journal of Economic Theory,
Elsevier, vol. 27(2), pages 245-252, August.
- David Kreps & Paul Milgrom & John Roberts & Bob Wilson, 2010. "Rational Cooperation in the Finitely Repeated Prisoners' Dilemma," Levine's Working Paper Archive 239, David K. Levine.
- Drew Fudenberg & David K. Levine, 1995.
"Reputation and Equilibrium Selection in Games with a Patient Player,"
Levine's Working Paper Archive
103, David K. Levine.
- Fudenberg, Drew & Levine, David K, 1989. "Reputation and Equilibrium Selection in Games with a Patient Player," Econometrica, Econometric Society, vol. 57(4), pages 759-78, July.
- Drew Fudenberg & David Levine, 1987. "Reputation and Equilibrium Selection in Games With a Patient Player," Working papers 461, Massachusetts Institute of Technology (MIT), Department of Economics.
- D. Fudenberg & David K. Levine, 1989. "Reputation and Equilibrium Selection in Games with a Patient Player," Levine's Working Paper Archive 508, David K. Levine.
- Spier, Kathryn E, 1992. "The Dynamics of Pretrial Negotiation," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 93-108, January.
- Heski Bar-Isaac, 2003.
"Reputation and Survival: Learning in a Dynamic Signalling Model,"
Review of Economic Studies,
Wiley Blackwell, vol. 70(2), pages 231-251, 04.
- Heski Bar-Isaac, 2003. "Reputation and Survival: Learning in a Dynamic Signalling Model," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 231-251.
- Bar-Isaac, Heski & Tadelis, Steven, 2008. "Seller Reputation," Foundations and Trends(R) in Microeconomics, now publishers, vol. 4(4), pages 273-351, August.
- K. Schmidt, 2010.
"Commitment Through Incomplete Information in a Simple Repeated Bargaining Game,"
Levine's Working Paper Archive
605, David K. Levine.
- Schmidt Klaus M., 1993. "Commitment through Incomplete Information in a Simple Repeated Bargaining Game," Journal of Economic Theory, Elsevier, vol. 60(1), pages 114-139, June.
- Che, Yeon-Koo & Yi, Jong Goo, 1993.
"The Role of Precedents in Repeated Litigation,"
Journal of Law, Economics and Organization,
Oxford University Press, vol. 9(2), pages 399-424, October.
- Hart, Oliver D & Tirole, Jean, 1988.
"Contract Renegotiation and Coasian Dynamics,"
Review of Economic Studies,
Wiley Blackwell, vol. 55(4), pages 509-40, October.
- D. Abreu & F. Gul, 1998.
"Bargaining and Reputation,"
Princeton Economic Theory Papers
00s9, Economics Department, Princeton University.
- Kathryn Spier & Xinyu Hua, . "Information and Externalities in Sequential Litigation," American Law & Economics Association Annual Meetings 1081, American Law & Economics Association.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dolly Guarini).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.