Sequencing Bilateral Negotiations with Externalities

Markus Reisinger and Münster, Johannes

No 16235, CEPR Discussion Papers from Centre for Economic Policy Research

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.

Keywords: Bargaining power; Sequential negotiations; Externalities; Bilateral contracting; Endogenous timing (search for similar items in EconPapers)
JEL-codes: C72 C78 D62 L14 (search for similar items in EconPapers)
Date: 2021-06
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