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The Role of External Search in Bilateral Bargaining

Author

Listed:
  • Shirish D. Chikte

    (Bell Communications Research, Red Bank, New Jersey)

  • Sudhakar D. Deshmukh

    (Northwestern University, Evanston, Illinois)

Abstract

We consider the problem of bargaining between two individuals who can also search for possible alternatives to each other's offers. We explicitly incorporate the search activity into the process of bargaining: a disagreement in bargaining will lead each individual to search for an outside offer in the hope of improving his future bargaining position and attaining a more favorable outcome. We model the interlaced phases of bargaining and search over time as an extensive noncooperative game. We characterize the associated subgame-perfect equilibrium outcome and strategies. Finally, we show that superior search ability yields an individual a more favorable outcome and hence represents a greater bargaining strength.

Suggested Citation

  • Shirish D. Chikte & Sudhakar D. Deshmukh, 1987. "The Role of External Search in Bilateral Bargaining," Operations Research, INFORMS, vol. 35(2), pages 198-205, April.
    • Handle: RePEc:inm:oropre:v:35:y:1987:i:2:p:198-205
    DOI: 10.1287/opre.35.2.198
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    Citations

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    Cited by:

    1. Anita Gantner, 2007. "Bargaining, Search, and Outside Options," Working Papers 2007-16, Faculty of Economics and Statistics, Universität Innsbruck.
    2. Gantner, Anita, 2008. "Bargaining, search, and outside options," Games and Economic Behavior, Elsevier, vol. 62(2), pages 417-435, March.
    3. Chatterjee, Kalyan & Lee, Ching Chyi, 1998. "Bargaining and Search with Incomplete Information about Outside Options," Games and Economic Behavior, Elsevier, vol. 22(2), pages 203-237, February.
    4. Zhenyu Hu & Wenjie Tang, 2021. "Size Matters, So Does Duration: The Interplay Between Offer Size and Offer Deadline," Management Science, INFORMS, vol. 67(8), pages 4935-4960, August.
    5. Rami Zwick & Ching Chyi Lee, 1999. "Bargaining and Search: An Experimental Study," Group Decision and Negotiation, Springer, vol. 8(6), pages 463-487, November.
    6. Fiona Scott Morton & Jorge Silva-Risso & Florian Zettelmeyer, 2011. "What matters in a price negotiation: Evidence from the U.S. auto retailing industry," Quantitative Marketing and Economics (QME), Springer, vol. 9(4), pages 365-402, December.
    7. Manel Baucells & Steven A. Lippman, 2004. "Bargaining with Search as an Outside Option: The Impact of the Buyer's Future Availability," Decision Analysis, INFORMS, vol. 1(4), pages 235-249, December.
    8. Chatterjee, Kalyan & Das, Kaustav, 2017. "Bilateral trading and incomplete information: Price convergence in a small market," Games and Economic Behavior, Elsevier, vol. 106(C), pages 89-113.
    9. Lee, Ching Chyi & Ferguson, Michael J., 2010. "To reveal or not to reveal? Strategic disclosure of private information in negotiation," European Journal of Operational Research, Elsevier, vol. 207(1), pages 380-390, November.

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