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Bilateral Bargaining with a Biased Intermediary

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  • Yusuke Yamaguchi

    (Institute of Social and Economic Research, The University of Osaka, JAPAN, Toulouse School of Economics, FRANCE, and Research Institute for Economics & Business Administration (RIEB), Kobe University, JAPAN)

Abstract

Bilateral bargaining is often facilitated by an intermediary. In many settings, however, the intermediary shares interests with one of the negotiating parties and lacks both commitment and enforcement power. This paper examines how such a biased intermediary affects bargaining outcomes. I consider a stylized bilateral trade framework and compare two bargaining games: a seller-offer bargaining game, in which the seller proposes a price, and a mediated bargaining game, in which the intermediary proposes a price and traders pay her commissions. By focusing on the set of communication equilibria in both games, I characterize the outcomes achievable when players are allowed general preplay and intraplay communication. I show that if the intermediary's bias is sufficiently small, the mediated bargaining game can yield a higher expected social surplus than the seller-offer bargaining game in the second-best scenario. This result provides a rationale for the widespread use of biased intermediaries in practice, even when their bias is common knowledge.

Suggested Citation

  • Yusuke Yamaguchi, 2025. "Bilateral Bargaining with a Biased Intermediary," Discussion Paper Series DP2025-20, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2025-20
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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2025-20.pdf
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    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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