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Randomly available outside options in bargaining

Author

Listed:
  • Clara Ponsatí

    (Institut d'Análisi Económica , 08193 Bellaterra, Barcelona, Spain and CODE Universitat Autònoma de Barcelona Department of Economics, University of Edinburgh, William Robertson Building, Edinburgh EH8 9JY, UK)

  • József Sákovics

    (Institut d'Análisi Económica , 08193 Bellaterra, Barcelona, Spain and CODE Universitat Autònoma de Barcelona Department of Economics, University of Edinburgh, William Robertson Building, Edinburgh EH8 9JY, UK)

Abstract

We consider an extension of the standard Rubinstein model where both players are randomly allowed to leave the negotiation after a rejection, in which case they obtain a payoff of known value. We show that, when the value of the outside opportunities is of intermediate size, there exist a continuum of subgame-perfect equilibrium outcomes, including some with delayed agreements. Considering outside opportunities of significant value, we prove that efficient delays arise caused by the bargainers' aspirations, in waiting for their outside, option rather than by threats. Moreover, if taking the outside option decreases the probability that the opponent receives an outside option in the future, then it is possible that exactly two equilibrium payoffs coexist. In this latter case, inefficiencies may be created by agreeing too early.

Suggested Citation

  • Clara Ponsatí & József Sákovics, 2001. "Randomly available outside options in bargaining," Spanish Economic Review, Springer;Spanish Economic Association, vol. 3(4), pages 231-252.
    • Handle: RePEc:spr:specre:v:3:y:2001:i:4:p:231-252
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    Cited by:

    1. Mercedes Adamuz, 2005. "Opting Out in a War of Attrition," Economics Bulletin, AccessEcon, vol. 3(49), pages 1-6.
    2. Manel Baucells & Steven A. Lippman, 2004. "Bargaining with Search as an Outside Option: The Impact of the Buyer's Future Availability," Decision Analysis, INFORMS, vol. 1(4), pages 235-249, December.
    3. Ponsati Clara, 2004. "Search and Bargaining in Large Markets With Homogeneous Traders," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 4(1), pages 1-27, February.
    4. Juan Vidal-Puga, 2005. "Reinterpreting the meaning of breakdown," Game Theory and Information 0501004, University Library of Munich, Germany.
    5. Ali, S. Nageeb M., 2006. "Waiting to settle: Multilateral bargaining with subjective biases," Journal of Economic Theory, Elsevier, vol. 130(1), pages 109-137, September.

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    Keywords

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    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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