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Alternating-offer games with final-offer arbitration

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  • Rong, Kang

Abstract

I analyze an alternating-offer model that integrates the common practice of having an arbitrator determine the outcomes if both playersʼ offers are rejected. I assume that the arbitrator uses final-offer arbitration (as in professional baseball). I find that if the arbitrator does not excessively favor one player, then the unique subgame-perfect equilibrium always coincides with the subgame-perfect equilibrium outcome in Rubinsteinʼs infinite-horizon alternating-offer game. However, if the arbitrator sufficiently favors the player making the initial offer, then delay occurs in equilibrium.

Suggested Citation

  • Rong, Kang, 2012. "Alternating-offer games with final-offer arbitration," Games and Economic Behavior, Elsevier, vol. 76(2), pages 596-610.
  • Handle: RePEc:eee:gamebe:v:76:y:2012:i:2:p:596-610 DOI: 10.1016/j.geb.2012.07.013
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    References listed on IDEAS

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    1. Amy Farmer, 2007. "Bargaining over an Uncertain Value: Arbitration Mechanisms Compared," Journal of Law, Economics, and Organization, Oxford University Press, pages 547-579.
    2. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, pages 97-109.
    3. JÕzsef SÂkovics & Clara PonsatÎ, 1998. "Rubinstein bargaining with two-sided outside options," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 667-672.
    4. Paola Manzini & Marco Mariotti, 2004. "Going Alone Together: Joint Outside Options in Bilateral Negotiations," Economic Journal, Royal Economic Society, vol. 114(498), pages 943-960, October.
    5. Kalai, Ehud & Smorodinsky, Meir, 1975. "Other Solutions to Nash's Bargaining Problem," Econometrica, Econometric Society, vol. 43(3), pages 513-518, May.
    6. Avner Shaked, 1994. "Opting out: bazaars versus "hi tech" markets," Investigaciones Economicas, Fundación SEPI, vol. 18(3), pages 421-432, September.
    7. Yildiz, Muhamet, 2011. "Nash meets Rubinstein in final-offer arbitration," Economics Letters, Elsevier, vol. 110(3), pages 226-230, March.
    8. Ken Binmore & Avner Shared & John Sutton, 1989. "An Outside Option Experiment," The Quarterly Journal of Economics, Oxford University Press, pages 753-770.
    9. Rong Kang, 2012. "An Axiomatic Approach to Arbitration and its Application in Bargaining Games," The B.E. Journal of Theoretical Economics, De Gruyter, pages 1-34.
    10. Manzini, Paola & Mariotti, Marco, 2001. "Perfect Equilibria in a Model of Bargaining with Arbitration," Games and Economic Behavior, Elsevier, vol. 37(1), pages 170-195, October.
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    Cited by:

    1. Kang Rong, 2015. "Bargaining with split-the-difference arbitration," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 45(2), pages 441-455, September.
    2. Rong Kang, 2012. "An Axiomatic Approach to Arbitration and its Application in Bargaining Games," The B.E. Journal of Theoretical Economics, De Gruyter, pages 1-34.

    More about this item

    Keywords

    Alternating-offer game; Final-offer arbitration; Rubinstein equilibrium; Delay in bargaining;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

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