Commitment and compromise in bargaining
This paper studies observable and irrevocable commitment in bargaining. We investigate when commitment tactics can cause an impasse and when compromise is feasible. In the static model in which a player's commitment decision is made simultaneously with his choice of bargaining stance, compromise becomes unattainable (Ellingsen and Miettinen, 2008). We first analyze a static bargaining model, in which the players decide whether to attempt commitment after announcing their demands. In contrast to the aforementioned strong result, our model accommodates both incompatible commitments and compromises as equilibrium outcomes. We then extend our analysis to a dynamic setting. It is shown that compromise is possible if the players can alter their demands quickly and the chances of successful commitment are low.
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- Muhamet Yildiz, 2003. "Bargaining without a Common Prior-An Immediate Agreement Theorem," Econometrica, Econometric Society, vol. 71(3), pages 793-811, 05.
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- Muthoo, Abhinay, 1996. "A Bargaining Model Based on the Commitment Tactic," Journal of Economic Theory, Elsevier, vol. 69(1), pages 134-152, April.
- Crawford, Vincent P, 1982. "A Theory of Disagreement in Bargaining," Econometrica, Econometric Society, vol. 50(3), pages 607-637, May.
- Tore Ellingsen & Topi Miettinen, 2008. "Commitment and Conflict in Bilateral Bargaining," American Economic Review, American Economic Association, vol. 98(4), pages 1629-1635, September.
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