Scandinavian Working Papers in Economics

SITE Working Paper Series,
Stockholm School of Economics, Stockholm Institute of Transition Economics

No 8: Commitment in Alternating Offers Bargaining

Topi Miettinen () and Andrés Perea ()
Additional contact information
Topi Miettinen: Stockholm Institute of Transition Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Andrés Perea: Maastricht University, Department of Quantitative Economics, Postal: P.O. Box 616, 6200 MD Maastricht, The Netherlands

Abstract: We extend the Ståhl-Rubinstein alternating-offer bargaining procedure to allow players, prior to each bargaining round, to simultaneously and visibly commit to some share of the pie. If commitment costs are small but increasing in the committed share, then the unique outcome consistent with common belief in future rationality (Perea, 2009), or more restrictively subgame perfect Nash equilibrium, exhibits a second mover advantage. In particular, as the smallest share of the pie approaches zero, the horizon approaches in…nity, and commitment costs approach zero, the unique bargaining outcome corresponds to the reversed Rubinstein outcome (d/(1 + d); 1/(1 + d)).

Keywords: alternating offer bargaining; bargaining power; commitment; epistemic game theory; patience

JEL-codes: C72; C78; D84

12 pages, November 17, 2009

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