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Delegated bargaining and renegotiation

  • Bester, Helmut
  • Sakovics, Jozsef

We examine the commitment effect of delegated bargaining when the delegation contract is renegotiable. We consider a seller who can either bargain face-to-face with a prospective buyer or delegate bargaining to an intermediary. The intermediary is able to interrupt negotiating with the buyer to renegotiate the delegation contract. We show that the time cost of renegotiation prevents a full elination of the commitment effect of delegation. Indeed, there are always gains from delegation when the players are sufficiently patient. An extension to search market environment shows that the gains from delegation are negatively related to the efficiency of search.

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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 45 (2001)
Issue (Month): 4 (August)
Pages: 459-473

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Handle: RePEc:eee:jeborg:v:45:y:2001:i:4:p:459-473
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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  1. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-50, September.
  2. Chaim Fershtman & Ehud Kalai, 1993. "Unobserved Delegation," Discussion Papers 1043, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    • Fershtman, Chaim & Kalai, Ehud, 1997. "Unobserved Delegation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(4), pages 763-74, November.
  3. Muthoo, Abhinay, 1992. "Revocable Commitment and Sequential Bargaining," Economic Journal, Royal Economic Society, vol. 102(411), pages 378-87, March.
  4. Muthoo, Abhinay, 1996. "A Bargaining Model Based on the Commitment Tactic," Journal of Economic Theory, Elsevier, vol. 69(1), pages 134-152, April.
  5. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-40, December.
  6. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
  7. Dewatripont, Mathias, 1988. "Commitment through Renegotiation-Proof Contracts with Third Parties," Review of Economic Studies, Wiley Blackwell, vol. 55(3), pages 377-89, July.
  8. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
  9. Harold Houba & Wilko Bolt, 1997. "Strategic bargaining in the variable threat game," Economic Theory, Springer, vol. 11(1), pages 57-77.
  10. Crawford, Vincent P, 1982. "A Theory of Disagreement in Bargaining," Econometrica, Econometric Society, vol. 50(3), pages 607-37, May.
  11. Chaim Fershtman & Kenneth L. Judd & Ehud Kalai, 1990. "Observable Contracts: Strategic Delegation and Cooperation," Discussion Papers 879, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. repec:fth:harver:1519 is not listed on IDEAS
  13. Bester, H., 1993. "Price Commitment in Search Markets," Papers 9309, Tilburg - Center for Economic Research.
  14. Haller, Hans & Holden, Steinar, 1997. "Ratification Requirement and Bargaining Power," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(4), pages 825-51, November.
  15. Bester, Helmut, 1995. "A bargaining model of financial intermediation," European Economic Review, Elsevier, vol. 39(2), pages 211-228, February.
  16. Katz, Michael L., 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," Department of Economics, Working Paper Series qt79b870w0, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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