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Multilateral Bargaining With Concession Costs

  • Guillermo Caruana

    ()

  • Liran Einav

    ()

  • Daniel Quint

    ()

    (CEMFI, Centro de Estudios Monetarios y Financieros)

This paper presents a new non-cooperative approach to multilateral bargaining. We consider a demand game with the following additional ingredients: (i) There is an exogenous deadline, by which bargaining has to end; (ii) Prior to the deadline, players may sequentially change their demands as often as they like; (iii) Changing one's demand is costly, and this cost increases as the deadline gets closer. The game has a unique subgame perfect equilibrium prediction in which agreement is reached immediately and switching costs are avoided. Moreover, this equilibrium is invariant to the particular order and timing in which players make demands. This is important, as multilateral bargaining models are sometimes too sensitive to these particular details. In our context, players with higher concession costs obtain higher shares of the pie; their increased bargaining power stems from their ability to credibly commit to a demand earlier. We discuss how the setup and assumptions are a reasonable description for certain real bargaining situations.

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Paper provided by CEMFI in its series Working Papers with number wp2004_0415.

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Date of creation: Sep 2004
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Handle: RePEc:cmf:wpaper:wp2004_0415
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  1. Olivier Compte & Philippe Jehiel, 2004. "Gradualism in Bargaining and Contribution Games," Review of Economic Studies, Wiley Blackwell, vol. 71(4), pages 975-1000, October.
  2. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  3. Ma, Ching-To Albert & Manove, Michael, 1993. "Bargaining with Deadlines and Imperfect Player Control," Econometrica, Econometric Society, vol. 61(6), pages 1313-39, November.
  4. Guillermo Caruana & Liran Einav, 2008. "A Theory of Endogenous Commitment," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 99-116.
  5. Winter Eyal, 1994. "Non-cooperative Bargaining in Natural Monopolies," Journal of Economic Theory, Elsevier, vol. 64(1), pages 202-220, October.
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  9. Perry Motty & Reny Philip J., 1993. "A Non-cooperative Bargaining Model with Strategically Timed Offers," Journal of Economic Theory, Elsevier, vol. 59(1), pages 50-77, February.
  10. Abhinay Muthoo, . "A Bargaining Model Based on the Commitment Tactic," Economics Discussion Papers 420, University of Essex, Department of Economics.
  11. Fershtman Chaim & Seidmann Daniel J., 1993. "Deadline Effects and Inefficient Delay in Bargaining with Endogenous Commitment," Journal of Economic Theory, Elsevier, vol. 60(2), pages 306-321, August.
  12. Ben Lockwood & Jonathan P. Thomas, 1999. "Gradualism and Irreversibility," CSGR Working papers series 28/99, Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick.
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  15. Gale, Douglas, 2001. "Monotone Games with Positive Spillovers," Games and Economic Behavior, Elsevier, vol. 37(2), pages 295-320, November.
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  17. Roger Lagunoff & Akihiko Matsu, . "Asynchronous Choice in Repeated Coordination Games," Penn CARESS Working Papers 23a1aa461811b8f48b0334f6e, Penn Economics Department.
  18. Admati, Anat R & Perry, Motty, 1991. "Joint Projects without Commitment," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 259-76, April.
  19. Saloner, Garth, 1987. "Cournot duopoly with two production periods," Journal of Economic Theory, Elsevier, vol. 42(1), pages 183-187, June.
  20. Crawford, Vincent P, 1982. "A Theory of Disagreement in Bargaining," Econometrica, Econometric Society, vol. 50(3), pages 607-37, May.
  21. Lensberg, Terje, 1988. "Stability and the Nash solution," Journal of Economic Theory, Elsevier, vol. 45(2), pages 330-341, August.
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  23. Selten,Reinhard, . "A demand commitment model of coalition bargaining," Discussion Paper Serie B 191, University of Bonn, Germany.
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