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Weakening the Weak may Harm the Strong. A Bargaining Model where Opting-In is Costly

Author

Listed:
  • Riedl, Arno

    (Department of Economics, Institute for Advanced Studies, Vienna)

Abstract

The opportunity to bargain often causes costs for at least one party in many economic situations, e.g. wage negotiations, joint ventures or interfirm cooperation. This paper studies such situations. A "strong" and a "weak" player have to agree how to divide the produced surplus. The "weak" player has to bear opting in costs. We characterize the set of subgame perfect equilibria. It is shown (i) that raising the costs of the weak party may strictly lower the payoff of the strong party, (ii) that for some cost levels the only equilibrium is inefficient, (iii) that if the players are sufficiently patient the outcomes of the "zero-cost model" and the "vanishing costs" version of our model do not coincide, and (iv) that in general multiplicity of equilibria arises.

Suggested Citation

  • Riedl, Arno, 1995. "Weakening the Weak may Harm the Strong. A Bargaining Model where Opting-In is Costly," Economics Series 13, Institute for Advanced Studies.
    • Handle: RePEc:ihs:ihsesp:13
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    File URL: https://irihs.ihs.ac.at/id/eprint/853
    File Function: First version, 1995
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    Cited by:

    1. Matthew Lowe & Madeline McKelway, 2021. "Coupling Labor Supply Decisions: An Experiment in India," CESifo Working Paper Series 9446, CESifo.

    More about this item

    Keywords

    Noncooperative Bargaining;

    JEL classification:

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

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