Bargaining with costly competition for the right to propose

Harold Houba, Duozhe Li, Quan Wen*

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

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We study a bargaining model in which players compete for the right to propose in every period, hence the bargaining protocol is determined endogenously. This model admits multiple equilibria, including many with delayed agreements and costly competition. We develop a general self-generating technique to characterize the extreme equilibria, and hence, the entire set of equilibrium payoffs. Our technique resembles an optimal contract design problem with all the sequential rationality conditions being treated as the incentive constraints. By means of an example, we show that as the discount factor goes to one, a player could obtain almost the entire surplus in his best equilibrium, while players’ competition efforts diminish to zero. We also find that some asymmetric equilibria are more efficient than the stationary equilibrium.

Original languageEnglish
Article number102558
Pages (from-to)1-9
Number of pages9
JournalJournal of Mathematical Economics
Early online date26 Aug 2021
Publication statusPublished - Jan 2022

Bibliographical note

Funding Information:
Duozhe Li acknowledges the financial support from the Hong Kong Research Grants Council General Research Fund (Project No. CUHK14611415).

Publisher Copyright:
© 2021


  • Bargaining
  • Contest
  • Extreme equilibria
  • The right to propose

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