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An application of wage bargaining to price negotiation with discount factors varying in time

  • Ahmet Ozkardas

    ()

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS)

  • Agnieszka Rusinowska

    ()

    (Axe Economie mathématique et jeux - CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics)

We consider a non-cooperative price bargaining model between a monopolistic producer and a monopsonic consumer. The innovative element that our model brings to the existing literature on price negotiation concerns the parties' preferences which are not expressed by constant discount rates, but by sequences of discount factors varying in time. We assume that the sequence of discount rates of a party can be arbitrary, with the only restriction that the infinite series that determines the utility for the given party must be convergent. Under certain parameters, the price negociation model coincides with wage bargaining with the exogenous always strike decision. We determine the unique subgame perfect equilibrium in this model for no-delay strategies independent of the former history of the game. Then we relax the no-delay assumption and determine the highest equilibrium payoff of the seller and the lowest equilibrium payoff of the buyer for the general case. We show that the no-delay equilibrium strategy profiles support these extreme payoffs.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00881151.

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Date of creation: Oct 2013
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Handle: RePEc:hal:cesptp:halshs-00881151
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  1. Gul, Faruk & Sonnenschein, Hugo, 1988. "On Delay in Bargaining with One-Sided Uncertainty," Econometrica, Econometric Society, vol. 56(3), pages 601-11, May.
  2. Izabela Jelovac, 2015. "On the relationship between the negotiated prices of pharmaceuticals and the patients' co-payment," Economics Bulletin, AccessEcon, vol. 35(1), pages 481-493.
  3. Moulet, Sonia & Rouchier, Juliette, 2008. "The influence of seller learning and time constraints on sequential bargaining in an artificial perishable goods market," Journal of Economic Dynamics and Control, Elsevier, vol. 32(7), pages 2322-2348, July.
  4. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November.
  5. Cramton, Peter C & Tracy, Joseph S, 1994. "Wage Bargaining with Time-Varying Threats," Journal of Labor Economics, University of Chicago Press, vol. 12(4), pages 594-617, October.
  6. Peter C. Cramton, 1991. "Dynamic Bargaining with Transaction Costs," Management Science, INFORMS, vol. 37(10), pages 1221-1233, October.
  7. Garcia Marinoso, Begona & Jelovac, Izabella & Olivella, Pau, 2011. "External referencing and pharmaceutical price negociation," Economics Papers from University Paris Dauphine 123456789/5987, Paris Dauphine University.
  8. Cason, Timothy N. & Friedman, Daniel & Milam, Garrett H., 2003. "Bargaining versus posted price competition in customer markets," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 223-251, February.
  9. Fernández-Blanco, Javier, 2012. "A directed search model of intermediated trade," European Economic Review, Elsevier, vol. 56(8), pages 1481-1494.
  10. Joydeep Srivastava & Dipankar Chakravarti & Amnon Rapoport, 2000. "Price and Margin Negotiations in Marketing Channels: An Experimental Study of Sequential Bargaining Under One-sided Uncertainty and Opportunity Cost of Delay," Marketing Science, INFORMS, vol. 19(2), pages 163-184, October.
  11. Fernandez, Raquel & Glazer, Jacob, 1991. "Striking for a Bargain between Two Completely Informed Agents," American Economic Review, American Economic Association, vol. 81(1), pages 240-52, March.
  12. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  13. Van Poucke, Dirk & Buelens, Marc, 2002. "Predicting the outcome of a two-party price negotiation: Contribution of reservation price, aspiration price and opening offer," Journal of Economic Psychology, Elsevier, vol. 23(1), pages 67-76, February.
  14. Oczkowski, Edward, 1998. "An econometric analysis of the bilateral monopoly model," Economic Modelling, Elsevier, vol. 16(1), pages 53-69, January.
  15. Coles, Melvyn G. & Muthoo, Abhinay, 2003. "Bargaining in a non-stationary environment," Journal of Economic Theory, Elsevier, vol. 109(1), pages 70-89, March.
  16. Feri, Francesco & Gantner, Anita, 2011. "Bargaining or searching for a better price? - An experimental study," Games and Economic Behavior, Elsevier, vol. 72(2), pages 376-399, June.
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