On the first-offer dilemma in bargaining and negotiations

António Osório

Theory and Decision, 2020, vol. 89, issue 2, No 5, 179-202

Abstract: Abstract In bargaining and negotiations, should one make the first offer or wait for the opponent to do so? Practitioners support the idea that moving first in bargaining is a mistake, while researchers find strong evidence that first-movers benefit from an anchoring effect. This paper addresses these issues from a theoretical perspective for the first time in the literature. It is found that first-movers benefit from a strategic advantage, while second-movers benefit from an information advantage. Therefore, the existence of first- and second-mover advantages depends crucially on the relative strength of these two effects. In line with the experimental literature, first-mover advantages are more prevalent, but second-mover advantages appear in very reasonable and realistic bargaining situations. Among other results, it is found that second-mover advantages require the existence of high-types (patient individuals) and differences in individuals’ preferences. The results also suggest a systematic first-mover advantage in contexts of great ambiguity, in which the anchoring effect of the first offer becomes the driving force.

Keywords: Bargaining and negotiation; First-offer dilemma; Anchoring effects; Information gains; Second-mover advantage (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s11238-020-09751-7

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