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Negotiation and take it or leave it in common agency

Listed author(s):
  • Peters, Michael

This short paper considers the validity of assuming that principals make their common agent a single take it or leave it contract offer instead of negotiating over the contract in a more complex way. The interest in this question arises from recent examples in the literature that illustrate equilibrium allocations that can be supported with negotiation, but not with simple take it or leave it offers. It is shown that with symmetric information, pure strategy equilibrium with take it or leave it offers are also equilibria when principals are allowed to negotiate. We also provide a class of environments in which 'pure strategy' equilibria with negotiation can all be supported with simple take it or leave it offers. The environment is restrictive, but encompasses the environment studied by Bernheim and Whinston (1986), as well as the environment involved in a simple Bertrand pricing problem similar to Klemperer and Meyer (1989).

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File URL: http://www.sciencedirect.com/science/article/pii/S0022-0531(03)00130-3
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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 111 (2003)
Issue (Month): 1 (July)
Pages: 88-109

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Handle: RePEc:eee:jetheo:v:111:y:2003:i:1:p:88-109
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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  1. Paul Klemperer, 2002. "What Really Matters in Auction Design," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 169-189, Winter.
  2. Bruno Biais & David Martimort & Jean-Charles Rochet, 2000. "Competing Mechanisms in a Common Value Environment," Econometrica, Econometric Society, vol. 68(4), pages 799-838, July.
  3. 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 763-774, November.
  4. B. Douglas Bernheim & Michael D. Whinston, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, Oxford University Press, vol. 101(1), pages 1-31.
  5. Peters, Michael, 2001. "Common Agency and the Revelation Principle," Econometrica, Econometric Society, vol. 69(5), pages 1349-1372, September.
  6. Prat, A. & Rustichini, A., 1998. "Sequential Common Agency," Discussion Paper 1998-95, Tilburg University, Center for Economic Research.
  7. Dixit, Avinash & Grossman, Gene M & Helpman, Elhanan, 1997. "Common Agency and Coordination: General Theory and Application to Government Policy Making," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 752-769, August.
  8. Paul Klemperer, 2002. "What Really Matters in Auction Design," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 169-189, Winter.
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