A Theory of Bargaining Deadlock

Hwang, Ilwoo

doi:10.2139/ssrn.2320550

Cited by 4 publications

(10 citation statements)

References 25 publications

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“…According to the Coase conjecture, the seller's introductory price converges to the competitive price and hence trade occurs almost immediately in bilateral bargaining between a single buyer and a single seller (Coase 1972). Contrary to the this paper's result, Board and Pycia (2014) and Hwang (2013) show that the Coase conjecture may fail if the buyer has an outside option. Both papers assume that the buyer's payoff from exercising her outside option is exogenously fixed as a parameter of the model.…”

Section: The Preview Of the Papercontrasting

confidence: 65%

“…Of course, the bargaining models studied by Board and Pycia (2014) and Hwang (2013) are not exactly equivalent to the current paper's, and hence this observation is only suggestive. For a more conclusive answer, I will introduce another bargaining game between a single seller and a single buyer where the buyer has outside options of exogenously fixed values.…”

Section: Contrast To Bargaining With Exogenous Outside Optionscontrasting

confidence: 51%

“…Most papers on the incomplete information bargaining problem do not model outside options explicitly. A few exceptions include Board and Pycia (2014) and Hwang (2013). The common message from these two papers is that the Coase conjecture may fail in incomplete information bargaining problems with exogenously given outside options.…”

Section: Related Literaturementioning

confidence: 99%

“…The refinement condition that seller's offer strategy be monotone is used by Hwang (2013), where the author imposes the same condition for some results. On the other hand, Rubinstein (1985) places a related monotonicity condition when he analyze an alternating-offer bargaining game with incomplete information about one bargainer's time preference.…”

Section: Refinement (R1)mentioning

confidence: 99%

“…A natural question is whether this result is driven by the endogeneity of buyer's outside option or by the refinement assumptions. Board and Pycia (2014) and Hwang (2013) study bargaining models in which the buyer can exercise an outside option of exogenously fixed value and show that the Coase conjecture may fails in some equilibria. 13 Moreover, equilibrium strategy profiles of these non-Coasean equilibria are seemingly consistent with the refinement conditions R1-R4.…”

Section: Contrast To Bargaining With Exogenous Outside Optionsmentioning

confidence: 99%

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Bargaining with Arriving Sellers

Chang

2015

SSRN Journal

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This paper investigates the role of competition between sellers on bargaining in which the buyer's valuation is private information. The buyer's contact with a new seller randomly occurs in the middle of a negotiation, and the buyer has an option to switch to the new seller, which serves as the buyer's endogenously generated outside option. This paper focuses on equilibria in which the sellers' offer strategies are anonymous and monotone in their beliefs about the buyer's reservation value. The main finding is that, if both the expected number of sellers and the arrival rate of new sellers are large enough, the buyer reaches an immediate agreement with the first seller in the continuous-time limit. The seller's introductory price approaches the competitive price and the outcome is efficient. If the buyer has outside options of exogenously fixed values, on the other hand, the seller may insist on a price higher than the competitive price, and hence the outcome may be inefficient in an equilibrium. This contrast between exogenous and endogenous outside options shows that researchers should carefully choose between the two models based on institutional details of the market they analyze.

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Section: The Preview Of the Papercontrasting

confidence: 65%

Section: Contrast To Bargaining With Exogenous Outside Optionscontrasting

confidence: 51%

Section: Related Literaturementioning

confidence: 99%

Section: Refinement (R1)mentioning

confidence: 99%

Section: Contrast To Bargaining With Exogenous Outside Optionsmentioning

confidence: 99%

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Bargaining with Arriving Sellers

Chang

2015

SSRN Journal

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Two-party Bargaining Processes Based on Subjective Expectations: A Model and a Simulation Study

Dias

Vetschera

2022

Group Decis Negot

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This work presents a model for a two-party bargaining process in which multiple offers are exchanged as the negotiation goes on, under a risk of breakdown. Typical game theoretical analyses of such settings assume the breakdown risk is known and the parties are able to calculate an initial offer that is immediately accepted by the other party, ending the negotiation. Aiming to develop a model that is closer to real-life situations, in which parties do exchange many offers in a bargaining process, we consider the parties are unable to compute the far-reaching consequences of their offers, and are guided by their subjective expectations of the outcome of the negotiation. This introduces a new perspective to the analysis of two-party bargaining processes: the confidence of the bargainers in terms of what they hope to achieve by bargaining with each other. The resulting model can be seen as an extension of the Zeuthen-Hicks bargaining model. We show analytically that under the assumption of concave utilities of both parties, the bargaining process converges to the nonsymmetric Nash bargaining solution, where the asymmetry is caused by differences in expectations. This result provides a new interpretation of the parameters of the nonsymmetric Nash bargaining solution, linking them to behavior in the bargaining process. As an additional contribution, we perform a simulation study to examine the role of confidence and to analyze the outcomes for non-concave utility functions.

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