Dynamic bilateral bargaining under private information with a sequence of potential buyers

Set in May 2000, these cases reflect the separate perspectives of the CEOs as they approach the negotiations of TSE International to acquire Yeats Valves. The task for the student is to complete a valuation analysis of the target and buyer, and to negotiate a price and exchange ratio with the counterparty. Each case contains a financial forecast only for that side; therefore, an important element in the negotiation is to obtain the private information of the other side, analyze it, and successfully negotiate terms of acquisition. The cases are relatively simple, and are offered as a first exercise in the valuation of the firm, and negotiation of an acquisition. They may be taught singly in usual case-discussion fashion, or combined into a joint-negotiation exercise where students are assigned parts to play. Used in a bilateral bargaining exercise, two teams of students are designated, each team representing one side of the negotiation and receiving a case designed for that team. The bargaining exercise provides a particular opportunity for joint teaching among instructors in finance, strategy, human behavior, and negotiation.

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Partial Unraveling and Strategic Contract Timing

Management Science ◽

10.1287/mnsc.2020.3770 ◽

2021 ◽

Author(s):

Liang Guo

Keyword(s):

Information Transmission ◽

Private Information ◽

Social Preferences ◽

Wholesale Price ◽

Bilateral Bargaining ◽

Vertical Relationships ◽

Bilateral Monopoly ◽

Ex Ante

Renegotiations and last-minute contracting are prevalent in many vertical relationships. Information transmission between firms and buyers can be imperfect as well. In this paper we present a theory to explicate how early/delayed contracting over wholesale prices, and partial unraveling of private information, can sustain each other endogenously in a channel setting with bilateral monopoly. Should the wholesale price be predetermined, the downstream manufacturer would be compelled to fully disclose all private information. By contrast, the to-be-negotiated wholesale price can be potentially affected by manufacturer disclosure or concealment. This can represent a countervailing force for equilibrium revelation to be imperfect, even when disclosure is costless. Thus partial unraveling may emerge if and only if no enforceable contract has been signed (i.e., contracting is delayed). Conversely, partial unraveling can endogenously influence ex ante preferences for contract timing. Therefore, contracting may be deliberately delayed even without learning/cost considerations. Moreover, equilibrium contract timing can be socially too early to alleviate channel distortions, and bilateral bargaining can align private and social preferences for delayed contracting. This paper was accepted by Dmitri Kuksov, marketing.

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