Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Dynamics of Bargaining Postures: The Role of a Third Party

Contents:

Author Info

  • Jihong Lee

    ()
    (Birkbeck College, University of London)

  • Qingmin Liu

    ()
    (Department of Economics, University of Pennsylvania)

Abstract

In 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 Info

If 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.
File URL: http://economics.sas.upenn.edu/system/files/working-papers/09-001.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 09-001.

as in new window
Length: 45 pages
Date of creation: 04 Nov 2008
Date of revision:
Handle: RePEc:pen:papers:09-001

Contact details of provider:
Postal: 3718 Locust Walk, Philadelphia, PA 19104
Phone: 215-898-9992
Fax: 215-573-2378
Email:
Web page: http://economics.sas.upenn.edu/pier
More information through EDIRC

Related research

Keywords: bargaining posture; repeated bargaining; third party information; reputation;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Mailath,G.J. & Samuelson,L., 1998. "Who wants a good reputation?," Working papers 19, Wisconsin Madison - Social Systems.
  2. 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.
  3. Oliver D. Hart & Jean Tirole, 1987. "Contract Renegotiation and Coasian Dynamics," Working papers 442, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. 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.
  5. Bar-Isaac, Heski & Tadelis, Steven, 2008. "Seller Reputation," Foundations and Trends(R) in Microeconomics, now publishers, vol. 4(4), pages 273-351, August.
  6. Dilip Abreu & Faruk Gul, 2000. "Bargaining and Reputation," Econometrica, Econometric Society, vol. 68(1), pages 85-118, January.
  7. Schmidt, Klaus M., 1993. "Commitment through Incomplete Information in a Simple Repeated Bargaining Game," Munich Reprints in Economics 19778, University of Munich, Department of Economics.
  8. Kremer, Ilan & Skrzypacz, Andrzej, 2007. "Dynamic signaling and market breakdown," Journal of Economic Theory, Elsevier, vol. 133(1), pages 58-82, March.
  9. repec:att:wimass:9120 is not listed on IDEAS
  10. 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.
  11. Spier, Kathryn E, 1992. "The Dynamics of Pretrial Negotiation," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 93-108, January.
  12. 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.
  13. 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.
  14. Kathryn Spier & Xinyu Hua, . "Information and Externalities in Sequential Litigation," American Law & Economics Association Annual Meetings 1081, American Law & Economics Association.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pen:papers:09-001. See general information about how to correct material in RePEc.

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.