Hold-up and the evolution of investment and bargaining norms

The purpose of this paper is to explore the evolution of bargaining norms in a simple team production problem with two sided relationship specific investments, and competition. The puzzle we wish to address is why efficient bargaining norms do not evolve even though there exist efficient sequential equilibria. Conditions under which stochastically stable bargaining conventions exist are characterized, and it is shown that the stochastically stable division rule is independent of the long run investment strategy. Hence, efficient sequential equilibria are not in general stochastically stable, a result that may help us understand why institutions, such as firms, may be needed to ensure efficient exchange in the context of relationship specific investments. We also find that increasing competition, while enhancing incentives, may also destabilize existing bargaining norms

An Experimental Study of the Holdout Problem in a Multilateral Bargaining Game

When an economic exchange requires agreement by multiple independent parties, the potential exists for an individual to strategically delay agreement in an attempt to capture a greater share of the surplus created by the exchange. This holdout problem is a common feature of the land-assembly literature because development frequently requires the assembly of multiple parcels of land. We use experimental methods to examine holdout behavior in a laboratory bargaining game that involves multi-person groups, complementary exchanges, and holdout externalities. The results of six treatments that vary the bargaining institution, number of bargaining periods, and cost of delay demonstrate that holdout is common across institutions and is, on average, a payoff-improving strategy for responders. Both proposers and responders take a more aggressive initial bargaining stance in multi-period bargaining treatments relative to single-period treatments, but take a less aggressive bargaining stance when delay is costly. Nearly all exchanges eventually occur in our multi-period treatments, leading to higher overall efficiency relative to the single-period treatments, both with and without delay costs. [excerpt

An Experimental Study of the Holdout Problem in a Multilateral Bargaining Game

When an economic exchange requires agreement by multiple independent parties, the potential exists for an individual to strategically delay agreement in an attempt to capture a greater share of the surplus created by the exchange. This “holdout problem” is a common feature of the land assembly literature because development frequently requires the assembly of multiple parcels of land. We use experimental methods to examine holdout behavior in a laboratory bargaining game that involves multi-person groups, complementary exchanges, and holdout externalities. The results of six treatments that vary the bargaining institution, number of bargaining periods, and the cost of delay demonstrate that holdout is common across institutions and is, on average, a payoff-improving strategy for responders. Both proposers and responders take a more aggressive initial bargaining stance in multi-period bargaining treatments relative to single-period treatments, but take a less aggressive bargaining stance when delay is costly. Nearly all exchanges eventually occur in our multi-period treatments, leading to higher overall efficiency relative to the single-period treatments, both with and without delay costs.

Contracts, Behavior, and the Land-Assembly Problem:An Experimental Study

We use multilateral bargaining experiments to examine how the order of bargaining (simultaneous or sequential) and the nature of contracts (contingent or non-contingent) affect the duration of bargaining, the efficiency of exchange, and the distribution of the surplus in a laboratory land-assembly game with one buyer and two sellers. While theory predicts an earnings advantage for the first seller when contracts are sequential and contingent, and for the second seller when contracts are sequential and non-contingent, we find that when a seller has an earnings advantage in the laboratory, it is the first seller to bargain in the non-contingent contract treatments. This result contradicts conventional wisdom and a common result from the land-assembly literature that it is advantageous to be the last seller to bargain, a so-called “holdout”. We also find evidence that sequential bargaining leads to more aggressive seller bargaining and greater bargaining delay than simultaneous bargaining, ceteris paribus, and that non-contingent contracts increase bargaining delay and the likelihood of failed agreements. The majority of sellers indicated a preference for being the first seller to bargain in all sequential bargaining treatments.

A Behavioral Model of Multilateral Bargaining and Holdout: Theory with Experimental Evidence

Bilateral monopoly, land assembly, and unanimous-consent Coasian bargaining present interesting strategic questions because they involve division of an economic surplus without competition to temper bargaining demands. We present a behavioral bargaining model in which payoff-maximizing proposers make offers to divide a surplus with one or more responders who are assumed to behave either strategically, or sincerely according to a minimum acceptable offer rule. We characterize equilibrium proposer and responder decisions under various scenarios regarding the number and type of responders, the number of bargaining periods, and the cost of delay. The model predictions are consistent with data from laboratory experiments.

On the co-evolution of investment and bargaining norms

Two parties bargaining over a pie whose size is determined by the investment decisions of both. The bargaining rule is sensitive to the investment behavior. If a symmetric investments profile is observed, bargaining proceeds according to the Nash Demand Game; otherwise bargaining proceeds according to the Ultimatum Game. We are interested in the evolutionary emergence of both an efficient investment norm and a bargaining norm. Under some conditions we prove that these norms co-evolve; when this happens they support the efficient investment and the egalitarian distribution of the surplus. In addition, when surplus requires that at least one agent invests, then either both norms co-evolve or no norm evolves.

Management science in the era of smart consumer products: Challenges and research perspectives

Dawid H, Decker R, Hermann T, et al. Management science in the era of smart consumer products: Challenges and research perspectives. Central European Journal of Operations Research. 2017;25(1):203-230.Smart products not only provide novel functionalities, but also may establish new business models, markets, or distribution channels, strengthen relationships with consumers, and/or add smart remote services. While many technical obstacles of such products have already been overcome, the broad market dissemination of smart products still poses some vital managerial challenges for decision makers. In this paper, we outline the technical potential and future trends of smart consumer products, discuss economic challenges in four scopes, namely, preference-based new product development, market analysis, supply chain design, and industry development, and, in particular, we highlight research perspectives for management science in this promising field

Hold-up and the evolution of investment and bargaining norms

Dawid H, MacLeod WB. Hold-up and the evolution of investment and bargaining norms. Games and Economic Behavior. 2008;62(1):26-52.The purpose of this paper is to explore the evolution of bargaining norms in a simple production problem with two-sided relationship specific investments and competition. The puzzle we wish to address is why efficient bargaining norms do not evolve even though there exist efficient sequential equilibria. Conditions under which stochastically stable bargaining conventions exist are characterized, and it is shown that there is a hierarchy of norms, with a stochastically stable division rule that is independent of the long run investment strategy. Due to this independence, efficient sequential equilibria are not in general stochastically stable. This result may help us understand why institutions, such as firms, may be needed to ensure efficient relationship specific investments. (C) 2007 Elsevier Inc. All rights reserved