Multilateral Bargaining with Concession Costs

19 Pages Posted: 7 Dec 2004

See all articles by Guillermo Caruana

Guillermo Caruana

Centre for Monetary and Financial Studies (CEMFI)

Liran Einav

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Daniel Quint

Stanford University - Department of Economics

Date Written: August 19, 2004

Abstract

This paper presents a new non-cooperative approach to multilateral bargaining. We consider a demand game with the following additional ingredients: (i) There is an exogenous deadline, by which bargaining has to end; (ii) Prior to the deadline, players may sequentially change their demands as often as they like; (iii) Changing one's demand is costly, and this cost increases as the deadline gets closer. The game has a unique subgame perfect equilibrium prediction in which agreement is reached immediately and switching costs are avoided. Moreover, this equilibrium is invariant to the particular order and timing in which players make demands. This is important, as multilateral bargaining models are sometimes too sensitive to these particular details. In our context, players with higher concession costs obtain higher shares of the pie; their increased bargaining power stems from their ability to credibly commit to a demand earlier. We discuss how the setup and assumptions are a reasonable description for certain real bargaining situations.

Keywords: Bargaining, commitment, switching costs

JEL Classification: C72, C73, C78

Suggested Citation

Caruana, Guillermo and Einav, Liran and Quint, Daniel, Multilateral Bargaining with Concession Costs (August 19, 2004). Available at SSRN: https://ssrn.com/abstract=626781 or http://dx.doi.org/10.2139/ssrn.626781

Guillermo Caruana (Contact Author)

Centre for Monetary and Financial Studies (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
Spain
34 91 429 0551 (Phone)
34 91 429 1056 (Fax)

Liran Einav

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
650-723-3704 (Phone)
928-223-4973 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Daniel Quint

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

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