Commitment and Choice of Partner in a Negotiation with a Deadline

Vicente Calabuig
University of Valencia

Antoni Cunyat
University of Valencia – Department of Economic Analysis

Gonzalo Olcina
University of Valencia

October 2000

Abstract:

This paper analyses the effects of partially revocable endogenous commitments of a seller in a negotiation with a deadline. In particular, we examine when commitment is a source of strength, a source of inefficiency and when it does not affect the bargaining outcome at all. We show that when commitment possesses a minimum amount of irrevocability this crucially determines the bargaining outcome. In the bilateral bargaining case, commitment becomes a source of inefficiency since it causes a deadline effect. In the choice of partner framework, however, the deadline effect disappears and there is an immediate agreement and, moreover, commitment becomes a source of strength since it increases the seller’s equilibrium payoff by triggering off competition between the buyers.

Commitment and Choice of Partner in a Negotiation with a Deadline