Abstract. We compare three common dispute resolution processes -negotiation, mediation, and arbitration -in the framework of Crawford and Sobel (1982). Under negotiation, the two parties engage in (possibly arbitrarily long) face-to-face cheap talk. Under mediation, the parties communicate with a neutral third party who makes a non-binding recommendation. Under arbitration, the two parties commit to conform to the third party recommendation. We characterize and compare the optimal mediation and arbitration procedures. Both mediators and arbitrators should optimally filter information, but mediators should also add noise to it. We find that unmediated negotiation performs as well as mediation if and only if the degree of conflict between the parties is low.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe solve for the optimal mechanism for selling two goods when the buyer's demand characteristics are unobservable. In the case of substitutable goods, the seller has an incentive to offer lotteries over goods in order to charge the buyers with large differences in the valuations a higher price for obtaining their desired good with certainty. However, the seller also has a countervailing incentive to make the allocation of the goods among the participating buyers more efficient in order to increase the overall demand. In the case when the buyer can consume both goods, the seller has an incentive to underprovide one of the goods in order to charge the buyers with large valuations a higher price for the bundle of both goods. As in the case of substitutable goods, the seller also has a countervailing incentive to lower the price of the bundle in order to increase the overall demand.

We analyze the performance of various communication protocols in a generalization of the Crawford-Sobel (1982) model of cheap talk that allows for multiple receivers. We find that whenever the sender can communicate informatively with both receivers by sending private messages, she can communicate informatively by sending public messages. In particular, it is possible that informative communication with one or both receivers is impossible in private, but possible in public. When the sender is allowed to send both public and private messages, it is possible for the sender to combine the commitment provided by public communication with the flexibility provided by private communication and transmit more information to the receivers than under either private or public communication scenarios. When the players can communicate through a mediator and the receivers are biased in the same direction, it is optimal for the sender to communicate with the receivers through independent private noisy communication channels. It is in general optimal to take advantage of pooling the sender's truthtelling constraints across the receivers when they are biased in the opposite directions.

We extend the "no-haggling" result of Riley and Zeckhauser (1983) to the class of linear multiproduct monopoly problems when the buyer's valuations are smoothly distributed. In particular, we show that there is no loss for the seller in optimizing over mechanisms such that all allocations belong to the boundary of the feasible set. The set of potentially optimal mechanisms can be further restricted when the costs are sufficiently low: the optimal mechanisms use only allocations from the "north-east" boundary of the feasible set and the null allocation.

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