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Sequencing Bilateral Negotiations with Externalities

Author

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  • Reisinger, Markus
  • Münster, Johannes

Abstract

In bilateral negotiations between a principal and two agents, we show that the agents' bargaining strengths are crucial for the determination of the bargaining sequence and the efficiency of decisions. In a general framework with externalities between agents, we find that the surplus is highest if the principal negotiates with the stronger agent first, regardless of externalities being positive or negative. The principal chooses the efficient sequence with negative externalities, but often prefers the inefficient sequence with positive externalities. We show that our results extend to a general number of agents and provide conditions for simultaneous negotiations to be optimal.

Suggested Citation

  • Reisinger, Markus & Münster, Johannes, 2021. "Sequencing Bilateral Negotiations with Externalities," CEPR Discussion Papers 16235, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16235
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    More about this item

    Keywords

    Bargaining power; Sequential negotiations; Externalities; Bilateral contracting; Endogenous timing;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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