Bargaining Before or After Communication?

Journal of Institutional and Theoretical Economics, Vol. 164, 2008

MIT Sloan Research Paper No. 1026182

Posted: 12 Nov 2007

See all articles by Birger Wernerfelt

Birger Wernerfelt

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Abstract

We ask how bargainers' incentives to communicate about more efficient widget designs depend on whether they negotiate price prior to, or after, fixing the traded design. We find three effects: (1) Since communication reveals information about preferences, bargainers with little power prefer to remain quiet prior to bargaining. (2) Later bargaining gives communicators a chance to share in joint gains from more efficient trades. (3) The revealed preference information enhances the efficiency of the bargaining process. The comparison might help explain why some contracts have more features left incomplete and throw some light on the nature of the employment relationship.

Keywords: Bargaining costs, communication, renegotiation

JEL Classification: D2, L2

Suggested Citation

Wernerfelt, Birger, Bargaining Before or After Communication?. Journal of Institutional and Theoretical Economics, Vol. 164, 2008; MIT Sloan Research Paper No. 1026182. Available at SSRN: https://ssrn.com/abstract=1026182

Birger Wernerfelt (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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