Weakening the weak may harm the strong: A bargaining model where opting-in is costly

Arbeitspapier

The opportunity to bargain often causes costs for at least one party in many economic situations, e.g. wage negotiations, joint ventures or interfirm cooperation. This paper studies such situations. A strong and a weak player have to agree how to divide the produced surplus. The weak player has to bear opting in costs. We characterize the set of subgame perfect equilibria. It is shown (i) that raising the costs of the weak party may strictly lower the payoff of the strong party, (ii) that for some cost levels the only equilibrium is inefficient, (iii) that if the players are sufficiently patient the outcomes of the zero-cost model and the vanishing costs version of our model do not coincide, and (iv) that in general multiplicity of equilibria arises.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Reihe Ökonomie / Economics Series ; No. 13

Classification and Topics

• Classification: Wirtschaft ; Bargaining Theory; Matching Theory
• Subject: noncooperative ; bargaining

Contributors, Location and Time

• Event: Geistige Schöpfung
• (who): Riedl, Arno
• Event: Veröffentlichung
• (who): Institute for Advanced Studies (IHS)
• (where): Vienna
• (when): 1995

Further information

• Handle: http://hdl.handle.net/10419/68552
• Last update: 10.03.2025, 11:43 AM CET