Bilateral Bargaining with a Biased Intermediary

Yusuke Yamaguchi
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Yusuke Yamaguchi: Institute of Social and Economic Research, The University of Osaka, JAPAN, Toulouse School of Economics, FRANCE, and Research Institute for Economics & Business Administration (RIEB), Kobe University, JAPAN

No DP2025-20, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: Bilateral bargaining is often facilitated by an intermediary. In many settings, however, the intermediary shares interests with one of the negotiating parties and lacks both commitment and enforcement power. This paper examines how such a biased intermediary affects bargaining outcomes. I consider a stylized bilateral trade framework and compare two bargaining games: a seller-offer bargaining game, in which the seller proposes a price, and a mediated bargaining game, in which the intermediary proposes a price and traders pay her commissions. By focusing on the set of communication equilibria in both games, I characterize the outcomes achievable when players are allowed general preplay and intraplay communication. I show that if the intermediary's bias is sufficiently small, the mediated bargaining game can yield a higher expected social surplus than the seller-offer bargaining game in the second-best scenario. This result provides a rationale for the widespread use of biased intermediaries in practice, even when their bias is common knowledge.

Keywords: Bargaining; Intermediary; Bias; Communication equilibrium (search for similar items in EconPapers)
JEL-codes: C78 D82 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2025-06
New Economics Papers: this item is included in nep-gth and nep-mic
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