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Randomly available outside options in bargaining

Author

Listed:
  • Clara Ponsatí

    (Institut d'Análisi Económica , 08193 Bellaterra, Barcelona, Spain and CODE Universitat Autònoma de Barcelona Department of Economics, University of Edinburgh, William Robertson Building, Edinburgh EH8 9JY, UK)

  • József Sákovics

    (Institut d'Análisi Económica , 08193 Bellaterra, Barcelona, Spain and CODE Universitat Autònoma de Barcelona Department of Economics, University of Edinburgh, William Robertson Building, Edinburgh EH8 9JY, UK)

Abstract

We consider an extension of the standard Rubinstein model where both players are randomly allowed to leave the negotiation after a rejection, in which case they obtain a payoff of known value. We show that, when the value of the outside opportunities is of intermediate size, there exist a continuum of subgame-perfect equilibrium outcomes, including some with delayed agreements. Considering outside opportunities of significant value, we prove that efficient delays arise caused by the bargainers' aspirations, in waiting for their outside, option rather than by threats. Moreover, if taking the outside option decreases the probability that the opponent receives an outside option in the future, then it is possible that exactly two equilibrium payoffs coexist. In this latter case, inefficiencies may be created by agreeing too early.

Suggested Citation

  • Clara Ponsatí & József Sákovics, 2001. "Randomly available outside options in bargaining," Spanish Economic Review, Springer;Spanish Economic Association, vol. 3(4), pages 231-252.
    • Handle: RePEc:spr:specre:v:3:y:2001:i:4:p:231-252
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    References listed on IDEAS

    as
    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. JÕzsef SÂkovics & Clara PonsatÎ, 1998. "Rubinstein bargaining with two-sided outside options," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(3), pages 667-672.
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    6. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
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    8. Wolinsky, Asher, 1987. "Matching, search, and bargaining," Journal of Economic Theory, Elsevier, vol. 42(2), pages 311-333, August.
    9. Avery Christopher & Zemsky Peter B., 1994. "Option Values and Bargaining Delays," Games and Economic Behavior, Elsevier, vol. 7(2), pages 139-153, September.
    10. Ponsati, C. & sakovics, J., 1996. "Bargaining in a changing Environment," UFAE and IAE Working Papers 351.96, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    11. Vislie, Jon, 1988. "Equilibrium in a market with sequential bargaining and random outside options," Economics Letters, Elsevier, vol. 26(4), pages 325-328.
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    Cited by:

    1. Juan Vidal-Puga, 2005. "Reinterpreting the meaning of breakdown," Game Theory and Information 0501004, University Library of Munich, Germany.
    2. Ponsati Clara, 2004. "Search and Bargaining in Large Markets With Homogeneous Traders," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 4(1), pages 1-27, February.
    3. Mercedes Adamuz, 2005. "Opting Out in a War of Attrition," Economics Bulletin, AccessEcon, vol. 3(49), pages 1-6.
    4. 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.
    5. Ali, S. Nageeb M., 2006. "Waiting to settle: Multilateral bargaining with subjective biases," Journal of Economic Theory, Elsevier, vol. 130(1), pages 109-137, September.

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    More about this item

    Keywords

    Bargaining; outside options;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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