DP16235 Sequencing Bilateral Negotiations with Externalities
|Author(s):||Johannes Münster, Markus Reisinger|
|Publication Date:||June 2021|
|Keyword(s):||bargaining power, Bilateral contracting, Endogenous timing, Externalities, Sequential negotiations|
|JEL(s):||C72, C78, D62, L14|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=16235|
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.