Negotiation and take it or leave it in common agency
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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References listed on IDEAS
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- Dixit, Avinash & Grossman, Gene M. & Helpman, Elhanan, 1997.
"Common Agency and Coordination: General Theory and Application to Government Policy Making,"
3450061, Harvard University Department of Economics.
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- Epstein, Larry G. & Peters, Michael, 1999.
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Elsevier, vol. 88(1), pages 119-160, September.
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