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Sequencing Bilateral Negotiations with Externalities

Author

Listed:
  • Johannes Münster

    (Department of Economics, University of Cologne)

  • Markus Reisinger

    (Department of Economics, Frankfurt School of Finance & Management)

Abstract

In bilateral negotiations between a principal and two agents, we show that the agents' bargaining strengths are crucial for the determination of the bargaining sequence and the efficiency of decisions. In a general framework with externalities between agents, we find that the surplus is highest if the principal negotiates with the stronger agent first, regardless of externalities being positive or negative. The principal chooses the efficient sequence with negative externalities, but often prefers the inefficient sequence with positive externalities. We show that our results extend to a general number of agents and provide conditions for simultaneous negotiations to be optimal.

Suggested Citation

  • Johannes Münster & Markus Reisinger, 2021. "Sequencing Bilateral Negotiations with Externalities," ECONtribute Discussion Papers Series 096, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkdps:096
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    File URL: https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_096_2021.pdf
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    References listed on IDEAS

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    1. Sarah Auster & Nenad Kos & Salvatore Piccolo, 2021. "Optimal pricing, private information and search for an outside offer," RAND Journal of Economics, RAND Corporation, vol. 52(4), pages 758-777, December.

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    More about this item

    Keywords

    bargaining power; sequential negotiations; externalities; bilateral contracting; endogenous timing;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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