Searching for a bargain: power of strategic commitment
Özyurt, Selçuk (2015) Searching for a bargain: power of strategic commitment. American Economic Journal: Microeconomics, 7 (1). pp. 320-353. ISSN 1945-7669 (Print) 1945-7685 (Online)
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Official URL: http://dx.doi.org/10.1257/mic.20130027
This paper shows that in a multilateral bargaining setting where the sellers compete a la Bertrand, a range of prices that includes the monopoly price and 0 are compatible with equilibrium, even in the limit where the reputational concerns and frictions vanish. In particular, the incentive of committing to a specific demand, the opportunity of building reputation about inflexibility, and the anxiety of preserving their reputation can tilt players' bargaining power in such a way that being deemed as a tough bargainer is bad for the competing players, and thus, price undercutting is not optimal for the sellers.
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