Searching for a Bargain: Power of Strategic Commitment
2015 ◽
Vol 7
(1)
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pp. 320-353
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Keyword(s):
This paper shows that in a multilateral bargaining setting where the sellers compete á 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. (JEL C78, D43, D83)
2019 ◽
Vol 11
(1)
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pp. 443-472
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