Gathering Information Before Negotiation

Liang Guo ()
Additional contact information
Liang Guo: CUHK Business School, Chinese University of Hong Kong, Shatin, Hong Kong, China

Management Science, 2023, vol. 69, issue 1, 200-219

Abstract: Uncertainty may exist about the desirability of trade in bilateral bargaining. For instance, buyers may not know their value perfectly and sellers may not be fully aware of their cost structure. We endogenize the expected surplus of trade by considering information gathering before price negotiation between a seller and a buyer. We show that prebargaining information acquisition can reverse standard findings in canonical bargaining models, regarding how the bargaining primitives may influence the equilibrium expected payoffs and the negotiated price. In particular, a higher bargaining power can result in a lower expected payoff, because the other party’s reduced incentive to acquire information would reduce the total pie to be split between the parties. In the same vein, the seller’s expected payoff can decrease as its material cost becomes lower or its outside option improves, and the buyer can be hurt by a higher value from the transaction or from its outside option. Similarly, the seller/buyer may become worse off by having more information if that induces the counter party to acquire less information. In addition, the expected negotiated price may decrease with the seller’s relative bargaining power, its material/opportunity cost, or the buyer’s incremental value. We also examine the robustness of the basic results under joint information acquisition or noncredible communication. Moreover, we show that a shopping intermediary may prefer to decrease the seller’s bargaining power or increase the buyer’s cost of gathering information. We discuss how our findings can shed light on practice and empirical research.

Keywords: bargaining; information acquisition; price negotiation; platform management (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2022.4360 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:69:y:2023:i:1:p:200-219

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().