Bargaining with revoking costs

Rohan Dutta

Games and Economic Behavior, 2012, vol. 74, issue 1, 144-153

Abstract: A simple two stage bilateral bargaining game is analyzed. The players simultaneously demand shares of a unit size pie. If the demands add up to more than one, the players simultaneously choose whether to stick to their demand or accept the otherʼs offer. While both parties sticking to their offers leads to an impasse, accepting a lower share than the original demand is costly for each party. The set of pure strategy subgame perfect equilibria of the game is characterized for continuously differentiable payoff and cost functions, strictly increasing in the pie share and the amount conceded, respectively. Higher cost functions are shown to improve bargaining power. The limit equilibrium prediction of the model, as the cost functions are made arbitrarily high, selects a unique equilibrium in the Nash Demand Game that corresponds to a Proportional Bargaining Solution of Kalai (1977).

Keywords: Nash demand game; Proportional bargaining solution; Bargaining; Commitment (search for similar items in EconPapers)
JEL-codes: C78 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:74:y:2012:i:1:p:144-153

DOI: 10.1016/j.geb.2011.06.006

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