Discussion Paper Details

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Title: Sequencing Bilateral Negotiations with Externalities

Author(s): Johannes Münster and Markus Reisinger

Publication Date: June 2021

Keyword(s): bargaining power, Bilateral contracting, Endogenous timing, Externalities and Sequential negotiations

Programme Area(s): Industrial Organization

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.

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Bibliographic Reference

Münster, J and Reisinger, M. 2021. 'Sequencing Bilateral Negotiations with Externalities'. London, Centre for Economic Policy Research.