Bargaining Before or After Communication?
Journal of Institutional and Theoretical Economics, Vol. 164, 2008
Posted: 12 Nov 2007
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: Suggested Citation