The Effects of Competition on Bargaining Power in Repeated Bilateral Negotiations

Groh, Christian

Document Type: Working paper
Year of publication: 1999
The title of a journal, publication series: GK Working Paper Series
Volume: 99-05
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > Graduiertenkolleg VWL/BWL
Subject: 330 Economics
Abstract: I model a market with repeated bilateral negotiations, random matching and an option to continue trade with the current partner. Sellers make all offers and have a commonly known value of zero for the good, the buyers have a commonly known value of one. While in a repeated bilateral monopoly situation a buyer can extract all the surplus I show that alternative trading partners in form of unmatched sellers are disadvantageous for the buyers. The result presumes that traders have no information about other traders’ bargaining history. Starting from that observation I allow buyers to compete for currently matched sellers. Competition leads to harsh punishments for a buyer who accepts a seller’s outof- equilibrium offer. Those harsh punishments ensure that buyers can offset the negative effect which alternative trading partners induce: payoffs exceed those without competition for any discount factor.

Dieser Eintrag ist Teil der Universitätsbibliographie.

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