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Bargaining Before or After Communication?

  • Birger Wernerfelt

We ask how bargainers' incentives to communicate about more efficient widget designs depend on whether they negotiate price prior to, or after, fixing the traded design. We find three effects: (1) Since communication reveals information about preferences, bargainers with little power prefer to remain quiet prior to bargaining. (2) Later bargaining gives communicators a chance to share in joint gains from more efficient trades. (3) The revealed preference information enhances the efficiency of the bargaining process. The comparison might help explain why some contracts have more features left incomplete and throw some light on the nature of the employment relationship.

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Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 164 (2008)
Issue (Month): 2 (June)
Pages: 211-229

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200806)164:2_211:bboac_2.0.tx_2-a
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  1. Meghan Busse & Jorge Silva-Risso & Florian Zettelmeyer, 2006. "$1,000 Cash Back: The Pass-Through of Auto Manufacturer Promotions," American Economic Review, American Economic Association, vol. 96(4), pages 1253-1270, September.
  2. Hermalin, Benjamin E & Katz, Michael L, 1993. "Judicial Modification of Contracts between Sophisticated Parties: A More Complete View of Incomplete Contracts and Their Breach," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 230-55, October.
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  5. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
  6. Freeman, C., 1991. "Networks of innovators: A synthesis of research issues," Research Policy, Elsevier, vol. 20(5), pages 499-514, October.
  7. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
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