Strategic Bargaining with Destructive Power
Posted: 9 Apr 1997
This paper studies a two-player alternating offers bargaining model in which one of the agents has the ability to damage permanently the "pie" bargained over. I show how this feature can result in an increase of the cost of rejecting an offer for the "non-harming player". Beside the "Rubinstenian" bilateral monopoly outcome, I show that it is possible to select a "harming" equilibrium in which the sequence of damages to the pie is endogenously determined and payoffs do not vary monotonically with the discount factor.
JEL Classification: D58
Suggested Citation: Suggested Citation