Events at CERGE-EI

Prof. Tymon Tatur

University of Bonn, Germany

Author: Tymon Tatur

Abstract: We consider a non-cooperative framework, where bargaining power is identified with the power to commit ex-ante and a limit is considered where the ability of players to commit goes to zero. Formally, whenever players decide to bargain they play a two stage game. In the first stage, each player simultaneously can precommit to a contract. These precommitments, however, are weak in the sense that there is uncertainty whether in the second stage a player will be actually committed to his contract or free to decide whether he wants to insist on his own contract or to compromise.

We show that perfect Bayesian equilibria exist and the outcomes of all such equilibria converge to the Nash bargaining solution as the commitment power of both players goes to zero. Therefore, our model can be seen as another non-cooperative foundation of the Nash bargaining solution. We then consider an extention to a larger class of weak precommitment devices such that even in the rare case where an attempted commitment is successful, the costs of breaking the commitment may not be prohibitive.

Full Text:  “Bargaining with Weak Precommitments”