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The prevalence of take-it-or-leave-it offers

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  • Kambe, Shinsuke

Abstract

We study the effect of the option to exit in finite-horizon, two-person bargaining where players make offers alternatingly and incur fixed costs per period. We show that players use take-it-or-leave-it strategies in the unique equilibrium when there is no discounting. Expecting a low payoff at the next period as a respondent, a proposer would choose to exit after her demand were rejected. This causes her opponent to accept her take-it-or-leave-it offer. This prediction is generically valid even when the division at the final period is exogenously given, and is conditionally true when the cost of bargaining includes discounting.

Suggested Citation

  • Kambe, Shinsuke, 2025. "The prevalence of take-it-or-leave-it offers," Games and Economic Behavior, Elsevier, vol. 151(C), pages 42-58.
    • Handle: RePEc:eee:gamebe:v:151:y:2025:i:c:p:42-58
    DOI: 10.1016/j.geb.2025.02.010
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    Keywords

    Take-it-or-leave-it offers; The option to exit; Alternating-offer bargaining; Fixed costs of bargaining; Finite-horizon bargaining;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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