Bargaining Theory with Application
Abstract
The first unified and systematic treatment of the modern theory of bargaining, presented together with many examples of how that theory is applied in a variety of bargaining situations. Abhinay Muthoo provides a masterful synthesis of the fundamental results and insights obtained from the wide-ranging and diverse (game-theoretic) bargaining theory literature. Furthermore, he develops new analyses and results, especially on the relative impacts of two or more forces on the bargaining outcome. Many topics - such as inside options, commitment tactics and repeated bargaining situations - receive their most extensive treatment to date. In the concluding chapter, he offers pointers towards future research. Bargaining Theory with Applications is a textbook for graduate students in economic theory and other social sciences and a research resource for scholars interested in bargaining situations.
... Hence, in the case of an impasse/disagreement, negotiators implement the status-quo (the previous agreement in full or in part). The status-quo has been shown to be crucial for future negotiations in many examples, including trade deals for the UK, following Brexit 4 . ...
... Second, in our model players may differ in terms of time preferences, while in [1], players are equally patient (but put different weights on the public good). The assumption of players with different time preferences is realistic and has been proven to enrich the analysis significantly (as shown, for instance, in the extensive review of bargaining theory in [4], in [5] in terms of agenda formation and [6] with focus on environmental issues). ...
... The closest papers in dynamic bargaining are [4,7] (Section 10). The latter is the first contribution with a focus on a repeated (non-cooperative) bargaining game with investment decisions in addition to the standard consumption decisions. ...
We analyze a dynamic bargaining game where parties can agree to implement a policy change, which is costly (beneficial) in the short-run but beneficial (costly) in the long-run. When the status-quo is endogenized (at least in some components), we show that the more farsighted party can induce their rival to accept the short-run costs of policy changes designed to generate benefits in the long-run. This is more common when players’ asymmetries are less pronounced, the status-quo is fully endogenized and the state depreciates more quickly.
... Portes (1986, 1989) made early contributions to what is now an extensive literature on the actual haircuts arising from sovereign default. 5 See Binmore et al. (1986) and Muthoo (1999) on the connection between the two approaches. 6 Inter alia, Pitchford and Wright (2012) focus on delays in sovereign debt restructuring using a dynamic bargaining model of entry and settlement; in their model delays arise due to collective action problems among creditors. ...
... 18 One of the bank estates (Glitnir, 2015) issued a nuanced analysis of the financial consequences for the estate of these two options under the heading "Stability contribution vs. stability tax." 19 The game could also be modelled as an alternating-offers Rubinstein-Ståhl bargaining game with an outside option. The two approaches are, however, equivalent in a limiting sense (Muthoo, 1999). Bargaining power in the alternating-offers approach arises from different discount rates of the bargaining parties: the more patient party, that is, that with the lower discount rate, has more bargaining power. ...
Iceland imposed strict capital controls when its banks failed in October 2008. Legacy problems and a large stock of carry-trade funds locked in by the controls hindered lifting them, but they also helped in resolving the banks. We formulate and calibrate a bargaining model describing the strategic interaction between Iceland and international investors. Outcomes indicate a judicious bargaining approach by Icelandic authorities which was ultimately successful and led to resolution by settlement. The results are robust to reasonable variations in parameter values and are consistent with outcomes in investment arbitration trials and anecdotal evidence from Icelandic case law.
... Numerous extensions of Rubinstein's original bargaining model are presented in the literature, see, e.g., Osborne and Rubinstein [1990]. Also Muthoo [1999] demonstrates CHAPTER 2. BARGAINING MODELS -A BRIEF LITERATURE OVERVIEW 21 the models with risk of breakdown, inside and outside options, etc. In this sub-section, we concentrate on the extensions of Rubinstein's bargaining model with non-stationary preferences of the parties. ...
... Collective wage bargaining between firms and unions (workers' representatives) is one of the most central issues in labor economics. Both cooperative and non-cooperative approaches to collective wage bargaining are applied in the literature; for broader surveys of bargaining models see, e.g., Osborne and Rubinstein [1990], Muthoo [1999]. Some authors apply a dynamic (strategic) approach to wage bargaining and focus on the concept of subgame perfect equilibrium. ...
This Ph.D. dissertation develops important contributions to the literature on wage bargaining. We introduce discount rates varying in time to the wage bargaining models in order to model real life situations in a more accurate way. In Chapter 1, we state the main objectives of this dissertation. In Chapter 2, we deliver a brief literature overview of bargaining models, more precisely wage bargaining models. We recall axiomatic and strategic approaches to bargaining and then describe in details strategic approach to wage bargaining models. In Chapter 3, we investigate the wage bargaining model with preferences varying in time. First, we analyze subgame perfect equilibria in the model and then determine the subgame perfect equilibria payoffs of the parties. Furthermore, we study the inefficient equilibria in the model. In Chapter 4, we investigate some extensions of the generalized wage bargaining model. First, we analyze wage bargaining with the go-slow actions of the union and study the subgame perfect equilibrium payoffs. Next, we investigate a wage bargaining model where the firm has the lockout option. In Chapter 5, we apply the generalized wage bargaining models to real life problems, such as price negotiations. In Chapter 6, we present conclusions and give new insights to our future research.
... H. Case 2 Case 2 of Table I represents a limiting case of the Rubinstein model [17]. Additionally, it is assumed that the parties' disagreement payoffs are a reasonable proxy for their patience [11]. Substituting Case 2 of Table I into Eq. ...
This paper expands on the concepts presented in Applying the Nash Bargaining Solution for a Reasonable Royalty ( arXiv:2005.10158 ). The goal is to refine the process for determining a reasonable royalty using statistical methods in cases where there is risk and uncertainty regarding each party's disagreement payoffs (opportunity costs) in the Nash Bargaining Solution (NBS). This paper uses a Bayes Cost approach to analyze Case 1, Case 2, and the Original Nash model from the authors' previous work. By addressing risk and uncertainty in the NBS, the NBS emerges as a more reliable method for estimating a reasonable royalty, aligning with the criteria outlined in Georgia Pacific factor fifteen.
... In contrast, bargaining enables players to try to reach agreements on their own without the help of any third party, centralized decision maker, or mediator [20, page 2]. 3) Non-monopoly: Since both fog nodes and IoT devices are abundant [12,30,31], each buyer (IoT device owner) can submit resource requests to many sellers (fog node owners) and each seller can accept requests from many buyers. Hence, fog pricing mechanisms should model outside options [20] on both the buyers' side and sellers' side. Thus, one-sided auctions [8] (typically, the seller-side, e.g., English and Dutch auctions) are not appropriate for bolstering fog resource pricing because as pointed out by Riley and Samuelson [24] and Bulow and Klemperer [4], one-sided auctions only model trading situations involving one (monopolistic) seller and many buyers. ...
Whereas there are group strategyproof mechanisms for a variety of problems, to date, group strategyproof bargaining has not been studied. Although shill bidding is widely studied in auctions, there is currently no work that analyzes the effect of shills on bargaining mechanisms. This paper validates that Sim’s agent-based fog bargaining (AFB) mechanism is both 1) strongly group strategyproof (i.e., it is more robust than existing group strategyproof mechanisms) and 2) shill resistant. Since Internet-based agents can coordinate themselves to shade (respectively, mark up) resource prices, bargaining mechanisms that are resistant to coordinated price shading (respectively, markup) by coalitions of agents are crucial in price bargaining between fog node owners and Internet-connected device owners. Mathematical proofs validate that the AFB mechanism is strongly group strategyproof because on top of satisfying the commonly adopted condition of group strategyproofness, i.e., coordinated price shading (respectively, markup) by coalitions of agents that results in the strict gain of some agent will also result in the strict loss of another agent, it also satisfies two additional stronger conditions that 1) there is no collusive surplus from coordinated price shading (respectively, markup) and 2) every agent cannot increase his/her utility by joining a coalition. Given the ease for agents to fake identities in the Internet, shill resistance is another critically important property of fog bargaining mechanisms. Mathematical evidence validates that coordinated price shading (respectively, markup) by coalitions with shills is not feasible in the AFB mechanism.
... (1) Dias and Vetschera (2022) have analyzed the case with expectations defined in the space of utilities as They demonstrated that if both parties have concave utility functions, then the only agreement for which none of the parties has an incentive to insist on a different solution is the Asymmetric Nash Bargaining Solution (ANS) (Muthoo 1999;Roth 1979). The expectation parameters, s and b , if different, originate the asymmetry. ...
This work proposes and studies a dynamic model of two bargaining parties exchanging offers over time, considering their confidence about the share of the “pie” they obtain, which translates into expectations regarding the outcome of the bargaining process. The model predicts the sequence of offers as well as the final agreement for given confidence parameters. A mathematical analysis of the model shows the outcome is an Asymmetric Nash Bargaining Solution with exponents determined by the bargainers’ confidence. Moreover, a compensation effect can be found between confidence and risk aversion. This work also considers that confidence levels of bargainers might change during the negotiation, and we conduct a comprehensive simulation study to analyze the effect of such changes. Through Monte-Carlo simulation, we show that a bargainer is better off if its confidence increases, but the advantage is lost if the other party’s confidence increases in a similar way. In that case, concessions are smaller and negotiations last longer. Changing confidence parameters make the outcome harder to predict, as it will depend more on the final confidence than the initial one. The simulations also show that the average size of concessions, and therefore the final agreement, depend not only on whether confidence increases or decreases, but also on the change rate, with stronger effects observed when change accelerates towards the end of the process.
... It might also be the case that player A can make the first offer, and there could be many rounds with alternating offers. In general, bargaining games can have multiple equilibria, including equilibria in mixed strategies (see, e.g., Muthoo, 1999). ...
We investigate contract negotiations in the presence of externalities and asymmetric information in a controlled laboratory experiment. In our setup, it is commonly known that it is always ex post efficient for player A to implement a project that has a positive external effect on player B . However, player A has private information about whether or not it is in player A ’s self-interest to implement the project even when no agreement with player B is reached. Theoretically, an ex post efficient agreement can always be reached if the externality is large, whereas this is not the case if the externality is small. We vary the size of the externality and the bargaining process. The experimental results are broadly in line with the theoretical predictions. However, even when the externality is large, the players fail to achieve ex post efficiency in a substantial fraction of the observations. This finding holds in ultimatum-game bargaining as well as in unstructured bargaining with free-form communication.
... Bargaining theory has a long tradition within the social science and bargaining is often defined as a situation when two players have a common interest to cooperate but have conflicting interests over exactly how to cooperate (see i.e.,Vanderschraaf, 2023;Muthoo, 1999).Content courtesy of Springer Nature, terms of use apply. Rights reserved. ...
Physical access to public services frequently does not guarantee people’s needs will be met — what we term effective access. Such discrepancies result in part from social bargaining: the extent to which citizens can leverage connections with street-level service providers. Survey data from 34 African countries shows citizens with greater social bargaining capacity enjoy greater effective access, in contrast to citizens who pay bribes. Data from 70,000 households in Tanzania further demonstrates that parents with greater social bargaining capacity have more opportunities to interact with school officials — and that their children are more likely to achieve relevant learning outcomes.
... Game theory has provided a valuable starting point for a rational theory of bargaining [70]. But game-theoretic analysis also suggests that modelling even simple cases of bargaining can be difficult. ...
What is required to allow an artificial agent to engage in rich, human-like interactions with people? I argue that this will require capturing the process by which humans continually create and renegotiate ‘bargains’ with each other. These hidden negotiations will concern topics including who should do what in a particular interaction, which actions are allowed and which are forbidden, and the momentary conventions governing communication, including language. Such bargains are far too numerous, and social interactions too rapid, for negotiation to be conducted explicitly. Moreover, the very process of communication presupposes innumerable momentary agreements concerning the meaning of communicative signals, thus raising the threat of circularity. Thus, the improvised ‘social contracts’ that govern our interactions must be implicit. I draw on the recent theory of virtual bargaining, according to which social partners mentally simulate a process of negotiation, to outline how these implicit agreements can be made, and note that this viewpoint raises substantial theoretical and computational challenges. Nonetheless, I suggest that these challenges must be met if we are ever to create AI systems that can work collaboratively alongside people, rather than serving primarily as valuable special-purpose computational tools.
This article is part of a discussion meeting issue 'Cognitive artificial intelligence'.
... Following [47], we need to differentiate either x u (t) or x v (t) with respect to time. ...
This paper tries to prove that the outcomes stemming from interactions on assignment markets bring about coordination in case of a stochastic matching subject to various forms of expectations. We consider an exchange network with stochastic matching between the pairs of players and analyze the dynamics of bargaining in such a market. The cases of convergent expectations, divergent expectations and of social preferences are studied. The extension of earlier works lies in the consideration of a stochastic matching on a graph dependent on the weights of edges. The results show that, in all three cases, the dynamics converges rapidly to the generalized Nash bargaining solution, which is an equilibrium that combines notions of stability and fairness. In the first two scenarios, the numerical simulations reveal that the convergence toward a fixed point is speedily achieved at the value of the outside option. In the third scenario, the fixed point promptly converges to the value of the outside option supplemented by the surplus share.
... This research area has been surveyed by [33]. Given that the negotiation over the commission fee for each switching patients involves HD and HS, we solve the bargaining game between the HD and the HS by utilizing the cooperative-game solution (also called the generalized Nash bargaining solution (NBS)) [34]. Our analysis framework can be applied to other types of bargaining solutions, such as the Kalai-Smorodinsky bargaining solution [35,36]. ...
The medical alliance has developed rapidly in recent years. This kind of alliance established by multiple hospitals can alleviate the imbalance of medical resources. We investigate the benefit of demand sharing between a hospital with large demand (HD ) and another hospital with large supply (HS). Two hospitals are modeled as queueing systems with finite service rates. Both hospitals set prices to maximize the revenues by serving their time-sensitive patients. We adopt a cooperative game theoretic framework to determine when demand sharing is beneficial. We also propose an optimal allocation of this benefit through a commission fee, which makes the alliance stable. We find that demand sharing may not be beneficial even if HS has a low capacity utilization. Demand sharing becomes beneficial for both hospitals only when the idle service capacity of HS exceeds a threshold, which depends on the potential demand rate of the HS and the unit waiting cost of hospitals. Furthermore, if the idle service capacity of HS is smaller than another threshold, which depends on the potential demand of the two hospitals and the service capacity of HD, then the benefit of demand sharing will be independent of the service capacity and potential demand of HD. We also examine the effect of system parameters on revenue gains due to demand sharing.
... To do this, a cooperative policy is used to introduce a binding agreement or a coalition among the devices, and this enables them to always cooperate to make decisions together and negotiating how to allocate resources, while no agreement exists between the devices in a non-cooperative game and they may consequently defect. Examples of game theory that falls under the cooperative games are the coalition games, repeated games, and bargaining games [127], while examples of game models in the category of the noncooperative game are the bid auction game theory, Stackelberg game theory, potential game theory, and the stochastic game [128]. ...
In this study, we conducted a bibliometric analysis and comprehensive review of the studies published between the period of 2012 and 2022 on resource management in the internet of things (IoT) networks using the Scopus database to determine the current state of research and gain insight into the research challenges and opportunities in the field. The bibliometric analysis technique was employed to bibliometrically analyze the published studies that were collected from the Scopus database and this helped to discover the majority of research subjects in the field of resource management in IoT networks. Following this, we conducted a comprehensive review of the relevant studies to provide an insight into the recent progress and the research gaps in the field. According to the results of our bibliometric analysis and the comprehensive review, we discovered that resource management problems in IoT networks is still a growing challenge as a result of the limited available resources for operating IoT networks. Consequently, the resource management problem is a critical research area due to the advantages of IoT in terms of collecting vital data that could be used in analyzing and predicting human behavior as well as environmental conditions. Also, the results of our bibliometric analysis and comprehensive review further revealed that research on the use of artificial techniques, such as optimization approaches and game theory approaches, for resource management are common while research on the use of the modern artificial intelligence technique, like deep learning approaches, is less common. Therefore, this study aims to fill the research gap in the area of resource management in IoT networks by introducing the use of deep learning approaches. Deep learning is a powerful artificial intelligence method that is advantageous for obtaining low-complexity resource allocation solutions in a near real-time. Also, various open research issues that are associated with the use of deep learning approaches are highlighted as future research directions to enable the development of novel deep learning models for IoT networks.
... Such factors have been examined from a number of different perspectives. For example, with regard to time, Fatima et al. examine the effects of deadlines on the ability of agents to reach agreements [36] and, with regard to the availability of other opportunities for satisfying a goal in addition to the current negotiation, Muthoo examines how such alternatives, or outside options, affect the way agents negotiate[101]. Our concerns are somewhat different, since we focus on the effects of such factors on the ways that agents prepare in the pre-negotiation stage, rather than their effects on the negotiation process itself. ...
p>The issues and challenges that surround the concept of interaction are a key focus in agent research. Of all forms of interaction, negotiation is perhaps the most challenging and important for designers of agent-based systems. This is because agents are localised entities that try to obtain satisfaction for their own activities with only limited understanding of the activities of other agents and the goals of the system as a whole. As a result, agents often have conflicting objectives, requiring methods and techniques, such as negotiation, for the resolution of such conflicts. Bargaining, in particular, provides a way for agents to attempt to find agreements in situations of conflict where no external authority can intervene. The work in this thesis describes models and mechanisms that enable agents to use bargaining as a tool to further their aims while ensuring that any agreements reached are consistent with existing goals. We focus on pre-negotiation, that point in time before negotiation begins where decisions that affect the way negotiation proceeds are taken. In the thesis, we bring together deliberative architectures, models of motivation and negotiation to address the issues involved in pre-negotiation.
Specifically, this thesis makes three main contributions. First, it provides a model of negotiation goals that incorporates an analysis of negotiation issues, a deliberative preference determination mechanism and a novel use of motivational mechanisms within negotiation. Second, it provides an analysis and taxonomy of bilateral negotiation issues. Finally, it provides a suite of mechanisms to enable an agent to modify its approach to negotiation based upon information it obtains about the negotiation context. Combined, these contributions enable agents to be more effective negotiators in dynamic domains where user guidance is problematic.</p
In a dynamically changing environment of post-pandemic, uncooperative investment of multiple tourism product suppliers’ service efforts and non-synergistic bundled pricing of multiple complementary tourism products lead to poor consumer experiences and satisfactions and low operational performance of tourism omnichannel. This study takes a game-theoretical approach to explore and understand the business dynamics regarding the investment of service efforts and bundled pricing mechanism of multiple suppliers’ complementary products in a tourism omnichannel, evolving rapidly in the tourism industry with still rare research literature. A generic tourism omnichannel structure with multiple complementary tourism product suppliers is conceptualized and formulated into game-theoretical models to investigate the optimal operational decisions on the service efforts investment and bundled pricing approach considering centralized, decentralized and cooperative decision scenarios. The derivation and comparison of the optimal decisions and outcomes for these models have shown that the cooperative strategy regarding the investment of service efforts and the bundled pricing of complementary products creates better operational performance than those of the decentralized ones in a tourism omnichannel. The findings of the numerical and sensitivity analyses offer valuable strategic insights to tourism omnichannel practitioners. The tourism omnichannel study also provides a better theoretical foundation for future tourism omnichannel research.
This paper studies the impact of nonstrategic seller-induced delays on the buyer’s willingness to pay in price negotiations.
Questions about the future of US supremacy, the global spread of liberal democracy, and liberal international economic institutions create what we call ‘international regime uncertainty’: doubts about the fundamental principles, rules, norms, and decision-making procedures that govern areas of international affairs. This includes both probabilistic assessments of the risk that prevailing principles and institutions cease to function but also fundamental uncertainty over what alternative institutional arrangements and governing principles may emerge. Irrespective of actual systemic change, international regime uncertainty can affect transnational economic and political activities by increasing structural policy uncertainty and the probability of bargaining failures. The political uproar over energy transition policies that seemingly violate core principles of the international trade regime illustrates these points.
We investigate a bargaining setting between an “informed” player, who has private information, and an “uninformed” player. The informed player has the option to truthfully disclose private information in two unique environments. In the first environment, the informed player is randomly matched with an uninformed player and, after matching, can voluntarily disclose private information prior to a negotiation taking place. In the second environment, the informed player can voluntarily disclose private information before any endogenous matching between players (and subsequent negotiation) takes place. We begin by examining these environments theoretically. When disclosure occurs after matching, we show that low informed types should disclose more often than high informed types to avoid disagreement. However, when disclosure occurs before matching, for a range of parameter values, we show that high informed types should disclose more than low informed types to secure a better match. We test these predictions in a controlled human-subjects experiment and verify many of the theoretical predictions. Among other results, we find that low informed types do indeed disclose their private information to avoid disagreement and that, when it is in their interest to do so, high informed types disclose their private information to secure a better match. Another key insight is that high uninformed types benefit from disclosure regardless of whether it occurs before or after matching.
This paper was accepted by Axel Ockenfels, behavioral economics and decision analysis.
Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.03566 .
This paper studies how capacity collaboration can benefit two competing firms. We consider a two-stage model where capacity decisions are made in the first stage when there are significant uncertainties about market conditions, and then production decisions are made in the second stage after most of these uncertainties are resolved. We vary the degree of collaboration between the two firms in their capacity and production decisions, examining multiple models and comparing the outcomes. We find that a firm can benefit from collaboration even with its competitors. Interestingly, the firms do not have to make production decisions jointly to realize the benefits of collaboration. Additionally, while collaborative capacity investment proves beneficial, collaborating on production with existing capacity can often yield greater benefits. We find that the advantages of collaboration are most pronounced when competition intensifies, demand fluctuates significantly, and investment costs are high.
Geniş anlamda “hegemonya” kavramı; herhangi bir sistemin ve bir sistem elemanın, başka bir sistem veya içinde bulunduğu sistemlerin işleyişi üzerinde etki edebilme ve belirleyici olabilmesi durumunu ifade etmektedir. Uluslararası ilişkiler ve alt disiplinleri olan uluslararası ekonomi ve siyaset anlamında hegemonya; bir ülkenin başka bir ülke üzerinde siyasal etki gücünü ifade etmektedir. Dünya savaşları sonrası ABD’de (Amerika Birleşik Devletleri) iktidarda olan demokrat partili başkanların küresel siyaset paradigma ve stratejilerinin merkezinde ABD’nin tek hegemonik güç olduğu yeknesak bir küresel siyasi ve ekonomik düzeni tesis etme amacı yer almıştır. İkinci dünya savaşı sonrasında “Mahan” doktrini çerçevesinde denizleri kontrol eden ABD hegemonyası ve karasal jeopolitik doktrinini uygulayarak Avrasya dünyası karasal bölgesini kontrol eden SSCB (Sovyet Sosyalist Cumhuriyetler Birliği) hegemonyasının birlikte var olduğu iki kutuplu bir uluslararası düzen inşa edilmiştir. 1991 yılında Sovyetlerin dağılması sonrası; ABD küresel düzene tek başına hükmeden bir hegemonik güce evrilmiştir. Bununla birlikte; Çin Halk Cumhuriyeti; 1978 yılında başlatılan reform süreci, devamında uygulanan “Perestroika (ekonomik açıklık politikaları)” ve “Glasnost” (siyasal açıklık politikaları) sonrasında Çin Halk Cumhuriyeti 2000’li yıllar sonrası küresel düzende ABD’nin hegemonik rakibi olarak ortaya çıkmıştır. Bu çalışmanın amacı; hegemonyanın ekonomi ve finans politiği çerçevesinde Biden doktrininin ve ABD-Çin rekabet dinamikleri ile bağlantısını hegemonya göstergeleri açısından saptamaktır. Daha sonra elde edilen sonuçların Türk dünyası ve Türkiye Cumhuriyeti üzerindeki olası fırsat ve tehditleri belirlemektir. ABD ve Çin’in hegemonik rekabetinin boyutlarını her iki ülke açısından ölçmek için için SWOT (Strengths, Weaknesses, Opportunities, and Threats) analizi yöntemi seçilmiştir. Bu yöntem belirli bir koşulda bir olgu için olası kuvvet, zayıflık, fırsat ve tehditleri karşılaştırmayı sağlamaktadır. Bu yöntemin seçilmesinin temel nedeni ABD-Çin hegemonik rekabetinde tarafların birbirlerine karşı üstün ve zayıf yönleri ile birlikte bu rekabetin getirdiği ; ABD-Çin rekabet dinamikleri olası sonuçlarının Türk Dünyası açısından avantajlarının yanı sıra dezavantajlarının da olabileceği yargısıdır.
Wars impose tremendous costs on societies and the question of how to end them is of foremost importance. Several hundred books and scientific articles have been written on peace agreements and third-party interventions. In this article I provide a critical literature survey on what policies foreign countries have at their disposal if they wish to foster peace abroad. Ranging from pure (nonmilitarized) mediation, over a range of military options to economic policies, the promises and pitfalls of these types of interventions are critically assessed in the light of cutting-edge theoretical and empirical literature. A series of take-home messages emerge: (i) establishing a causal effect of mediation has proven difficult; (ii) military peacekeeping operations can play a key role, to the extent that security guarantees, the sharing of political and military power, and trust-building measures are well coordinated; and (iii) money matters—fostering human capital and economic opportunities contributes to fertile ground for lasting peace. (JEL C78, D74, D82, F13, F51, F52)
Recent years have witnessed e‐commerce platforms that voluntarily invest in new digital technologies to help their suppliers reduce production costs. To examine its impact on channel structure, we develop a supply chain model consisting of a supplier and an e‐commerce platform who purchases products from the supplier at a wholesale price and sells them to end markets. In addition, the supplier has the option to accept the marketplace by paying a commission fee charged by the platform. We show that the presence of voluntary investment on production improvement can overturn some classical insights from prior studies. For example, a higher marketplace commission fee can lead to a lower selling quantity in the marketplace, but a higher order quantity in the reselling channel under certain conditions. This stands in strict contrast to the opposite finding when the platform invests instead on demand enhancement. In addition, previous studies suggest that offering the supplier the marketplace option is beneficial to the supplier but is detrimental to the platform. However, with voluntary investment, the platform can benefit from allowing the supplier to encroach via the marketplace, and in some situations the supplier suffers from having such an option. We find that the commission fee and the production cost are two interacting forces steering equilibrium decisions for supply chain members, and we characterize the concise operating regimes for the channel structure choices on behalves of the supplier and the platform. A number of extensions are discussed, including product substitution level, investment cost structure, whether the quantity decisions are made simultaneously or sequentially, voluntary investment timing, and endogenous commission fee.
Given high costs of negotiating formal international institutions, states are widely expected to adapt, reform, and repurpose existing institutions rather than create new ones. Nevertheless, during the past century some 60 intergovernmental organizations (IGOs) have been directly replaced by a legal successor. Why do states sometimes dissolve an existing IGO only to replace it with a new one that takes over the incumbent organization’s mandate and assets—a practice known as institutional succession? We offer a theory of institutional succession and illustrate with examples. Against the dominant belief that creating new IGOs is a choice of last resort, we argue that reform and succession are equally expedient tools for achieving institutional change but address different negotiating hurdles. By creating a new institution (as opposed to amending an existing one) succession bypasses veto players that may stunt reform. However, succession suffers from potential diseconomies-of-scale (since not every member of an existing IGO may join the successor) which reform does not. Depending on which negotiation hurdle prevails, reform will be preferred to succession or vice versa. Our analysis advances existing understandings of institutional contestation and change within the life cycle of an international organisation.
Nick Bostrom and others have suggested treating decision-making under moral uncertainty as analogous to parliamentary decision-making. The core suggestion of this “parliamentary approach” is that the competing moral theories function like delegates to the parliament, and that these delegates then make decisions by some combination of bargaining and voting. There seems some reason to hope that such an approach might avoid standard objections to existing approaches (for example, the “maximise expected choiceworthiness” (MEC) and “my favourite theory” approaches). However, the parliamentary approach is so far extremely underspecified, making it largely indeterminate how such a model will in fact behave in the respects that those concerned with moral uncertainty care about.
This paper explores one way of making it precise. We treat predicaments of moral uncertainty as analogous to bargaining situations alone (setting aside voting), and apply a version of the Nash solution that is standard in bargaining theory. The resulting model does indeed perform in many of the hoped-for ways. However, so also does a version of MEC that employs a structural approach to intertheoretic comparisons. It seems to us an open question which, regarding this version of MEC and the bargaining-theoretic approach, is superior to the other. We identify the key points on which the two differ.
When entering a new market, entrepreneurs generally hold an optimistic belief about the inertia of consumers (i.e., consumer's tendency to repurchase the incumbent product), leading to a high rate of failure. This paper constructs a supply chain with one manufacturer, one retailer, and one potential optimistic entrant who attempts to enter the wholesaling market. We characterize how the behaviors of the entrant's optimism and consumer's inertia jointly affect the pricing (deterrence) strategy of the incumbent manufacturer, entry strategy of the entrant, and equilibrium decisions in the post‐entry game. Interestingly, our results show that: (i) in the post‐entry game, both behaviors could benefit the two manufacturers but are detrimental to the retailer; (ii) in the entry strategy, when consumers are moderately inertial or the entrant is highly optimistic, the entrant will suffer from an incorrect entry decision and then has an unprofitable entry; (iii) in the pricing strategy, the incumbent manufacturer will set the normal wholesale price to blockade the entry if consumers have high inertia or the entrant has a low optimism; otherwise, he will set a new price to accommodate the entry. Furthermore, we discuss two different cases, finding that (iv) the existence of the retailer weakens the deterrent power of the incumbent manufacturer; and (v) the retailer will induce the manufacturer to accommodate the entry when the entrant is moderately optimistic.
Expected exponentially-discounted utility (EEDU) is the standard model of choice over risk and time in economics. This paper considers the dynamic preference foundations of EEDU in the timed risks framework. We first provide dynamic preference foundations for a time-invariant expected utility representation. The new axioms for this are called foregone-risk independence and strong time invariance. This class of dynamic preferences includes EEDU as a special case. If foregone-risk independence is strengthened to a new condition called conditional consistency, then an EEDU representation results. Alternative approaches for extending exponential discounting axioms to risk are considered, resulting in five new preference foundations of EEDU.
Mergers between previously contending firms are a permanent challenge for policymaking as they potentially harm competition. The core incentive to merge is the prospect of higher joint profits of the previously independent firms after the merger. We discuss and compare the core assumptions of Horn and Wolinsky (1988) and von Ungern-Sternberg (1996) that lead to contrary results regarding the attractiveness of horizontal mergers of downstream firms in a 1:2 setting leading to a monopolized 1:1 setting. While the latter finds a merger beneficial for the downstream firms, it harms their joint profit, according to Horn & Wolinsky. We theoretically apply both models to the two settings. We also present extensive sample calculations that quantitatively confirm the two papers’ core insights. Discussing and contextualizing the results, we provide a comprehensive overview of horizontal mergers in the downstream part of vertical structures with bargaining over linear input prices. Due to continuing relevance of horizontal mergers for competition policy and, in particular, in light of the consolidation phase in tech start-ups, the topic is of enduring relevance in policymaking.
We develop an optimal licensing model of a product innovation in which the (external) patent holder negotiates sequentially a two-part tariff contract with two potential licensees that have a positive and strategic outside option. We study the role of this strategic outside option in determining technology diffusion and efficiency of the bargaining. Although rich enough contracts allow the solution of the well known opportunism problem, the strategic outside option of the second negotiator implies deviation from industry profit maximization, which reduces the profitability of nonexclusive licensing. As a result, exclusive licensing still prevails under certain conditions. We extend our analysis to assess the profitability for the innovator to integrate vertically with either firm in the market. The internal patent holder always sells the innovation to the rival non-affiliate as a way to co-opt the latter and improve the profits of the former. As a result, vertical integration as compared with vertical separation may imply a positive quality improving effect. The private and social profitability of vertical integration depends on the type of bargaining between the negotiators and on the distribution of their bargaining power.
This study explores the allocation of decision rights between two parties with different bargaining powers in a bidirectional open innovation setting. We introduce the generalized Nash bargaining solution to allow for unequal bargaining power in ex-post negotiation. As a result, we propose that the party with contracting power releases decision rights depending on its bargaining power. In addition, we propose that the best allocation of decision rights for the maximization of innovation value or the realization of efficient innovation depends on bargaining power and is achieved voluntarily. Lastly, we point out that there are cases in which asymmetric ex-post bargaining power leads to collaboration failure. We conclude that ex-post bargaining power plays a crucial role in influencing the allocation of incentives and the outcomes of open innovation.
This work contributes an (approximately) incentive-compatible and computationally efficient bargaining mechanism for pricing fog computing resources. In network settings (e.g., fog computing), it is plausible to think that self-interested and incompletely informed players (represented by software agents) will attempt to maximize their own benefits at the expense of others. Hence, it is crucial that fog bargaining mechanisms give incentives to agents for behaving in a manner consistent with the desired outcome where every agent’s benefit is maximized. Equilibrium analyses validate that the fog bargaining mechanism in this work is approximately Bayesian incentive compatible because every agent can approximately maximize its expected utility by adhering to the strategy recommended by the bargaining mechanism given that all other agents also adhere to their equilibrium strategies. That is, if every agent in the market adheres to the strategy recommended by the bargaining mechanism, then the strategy profile of the agents forms an approximate Bayesian Nash equilibrium. Given that a fog resource market has a large number of buyers and a large number of sellers, computational efficiency is also imperative since every agent needs to process a huge number of trading alternatives. Computational complexity analyses validate that 1) the procedure for carrying out the bargaining strategy has a linear time complexity, and with every passing round, the search space dwindles but the solutions become progressively better, 2) the number of rounds for each agent to complete bargaining is logarithmic in the number of its opponents, and 3) each agent has a linear message complexity.
This paper presents a bargaining model of contract outcomes as a function of contract uncertainties associated with critical supply purchasing after a crisis. It examines contract modifications and termination. The model yields the following results: (1) contract modification by the government alone (unilateral modification) does not change the optimal contract; (2) contract modification by mutual agreement (bilateral modification) makes the optimal contract dependent on product price, acquisition costs, transaction costs, and uncertainty; (3) mutual contract modifications are affected negatively by government costs of contract modification and are affected positively by supplier's costs of contract modification; (4) the government may find it necessary to terminate a contract if the contract elasticity of government utility is zero, and the contractor may want to terminate the contract when its supply price equals the acquisition price.
From a contractarian perspective, the powers of the state should be underpinned by the agreement of its citizens. But (1) citizens will have inconsistent preferences about the state they want, not just between, but within, individuals; (2) some people may wish to impose rules on others; and (3) citizens may have systematically incorrect models of the consequences of state power. In the light of these challenges, I will ask how far these difficulties be addressed by applying a process of agreement through open debate and discussion, grounded in good evidence, and how well any such process is reflected in real-world politics.
We consider a firm selling heterogeneous products with prices customized for each customer and the final price is set by negotiations between seller and customer. This type of pricing modality is referred to as customized pricing with discretion and is commonly used in insurance, consumer loans, mortgages, and many business‐to‐business markets. We assume that each sales agent has a reserve price and each customer has a willingness‐to‐pay which are jointly drawn from a distribution and, if the transaction is successful, they agree on a price between these two values based on their relative bargaining power. Given the outcomes of a series of negotiations, our goal is to estimate the underlying joint distribution of reserve price and willingness‐to‐pay, and predict the outcomes of future transactions. We assume that the price that prevails as the outcome of the negotiation can be represented as a generalized Nash bargaining equilibrium. We develop a structural estimation method based on the expectation‐maximization algorithm to estimate the parameters of reserve price and willingness‐to‐pay distribution. Using a real‐world data set from indirect auto‐lending industry, we show that our proposed method, which accounts for heterogeneity in sales agent's reserve price and customer's willingness‐to‐pay, improves the predictive accuracy of final price (annual percentage rate) and take‐up probability (i.e., probability of a customer accepting the loan) on real‐world test data by about 8.70% and 3.68%, respectively, compared to a (Tobit‐based) model which accommodates unobserved heterogeneity in customer's willingness‐to‐pay only. Using the structural EM estimates, we conduct counterfactual analyses to understand the impact of different pricing policies, which vary in the amount of discretion provided to the sales agent during the negotiation process. For example, we find that the lender may increase profits by 13.63% compared to the status quo by optimally imposing a customized minimum price (annual percentage rate) below which a loan should not be offered to the customer. This article is protected by copyright. All rights reserved
While policy evaluation needs to be evidence-based, it also faces conflicts involving various stakeholders. Whether to prioritize interest alignment or evidence and objectivity in assessment is a major issue. In this chapter, we show that, in accordance with economic principles, the highest priority should be given to deriving socially optimal outcomes based on evidence, regardless of conflicts of interest. This is because it is desirable to conduct objective analysis in accordance with the relevant principles, even when information asymmetry exists between policymakers and stakeholders. We should recognize the existence of information rents based on the revelation principle and guarantee a certain amount of gain for providing correct information. Furthermore, encouraging evidence-based and voluntary citizen involvement will promote the resolution of the implementation problem.
This paper considers the problem of fair allocation of multiple types of resources in heterogeneous servers, along with a resource type external to those servers. Our work is motivated by the need for fair multi-resource allocation in mobile edge computing (MEC), where the users must upload their tasks over a single dedicated wireless communication link that exists outside the computing servers. We propose a fair multi-resource allocation mechanism for this environment, termed Task Share Fairness with External Resource (TSF-ER), which finds the Kalai-Smorodinsky bargaining solution satisfying important fairness properties. We show that TSF-ER is envy-free, Pareto optimal, and strategy-proof, and it satisfies the property of sharing incentive. Large-scale simulation driven by Google and Alibaba cluster trace further shows that TSF-ER significantly outperforms the existing utilitarian, Nash social welfare maximizer, and egalitarian solutions, leading to fairer resource allocation while maintaining a high level of resource utilization.
Another way to launch a new venture without any money, in addition to arbitrage, is by using a forgiving business model. The problem with being an entrepreneur is that it poses a risk of loss, which presumably is tolerated better by those who already possess resources, but not always.
I revisit the Rubinstein (1982) model for the classic problem of price haggling and show that bargaining can become a “trap,” where equilibrium leaves one party strictly worse off than if no transaction took place (e.g., the equilibrium price exceeds a buyer's valuation). This arises when one party is impatient about capturing zero surplus (e.g., Rubinstein's example of fixed bargaining costs). Augmenting the protocol with costless unilateral exit options for responding bargainers generally removes the trap.
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