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Passing the Buck in Sequential Negotiation

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  • Clark Derek J

    () (University of Tromsø)

  • Pereau Jean-Christophe

    () (Université Paris Est)

Abstract

We consider bargaining between three firms that are all essential in creating a surplus. One of the firms is dominant in the sense that it ultimately decides whether the surplus will be created. The other firms have an incentive to get a large share of the pie for themselves, but leaving enough for the dominant firm that it finds it profitable to create the surplus. Hence, the smaller firms have preferences over who they take their share from. The bargaining takes place in sequence, and we identify optimal choice of bargaining framework for each firm. Conditions are presented under which a firm would prefer not to be represented at a stage in the negotiation process, and we show that the preferred order of bargaining for the dominant firm is also that which maximizes the total expected surplus from negotiation.

Suggested Citation

  • Clark Derek J & Pereau Jean-Christophe, 2008. "Passing the Buck in Sequential Negotiation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 8(1), pages 1-18, December.
  • Handle: RePEc:bpj:bejtec:v:8:y:2008:i:1:n:26
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
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    4. Daughety, Adnrew F & Reinganum, Jennifer F, 1993. "Endogenous Sequencing in Models of Settlement and Litigation," Journal of Law, Economics, and Organization, Oxford University Press, vol. 9(2), pages 314-348, October.
    5. Fershtman, Chaim, 2000. "A Note on Multi-Issue Two-Sided Bargaining: Bilateral Procedures," Games and Economic Behavior, Elsevier, vol. 30(2), pages 216-227, February.
    6. Thomas H. Noe & Jun Wang, 2004. "Fooling All of the People Some of the Time: A Theory of Endogenous Sequencing in Confidential Negotiations," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 855-881.
    7. Masao Nakamura & Hiroyuki Odagiri, 2003. "Transaction costs and capabilities as determinants of the R&D boundaries of the firm: a case study of the ten largest pharmaceutical firms in Japan," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 24(2-3), pages 187-211.
    8. Cai, Hongbin, 2000. "Delay in Multilateral Bargaining under Complete Information," Journal of Economic Theory, Elsevier, vol. 93(2), pages 260-276, August.
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