Learning in Final-Offer Arbitration with Multiple Offers

Abstract

Motivated by the price-setting process of water utilities in Chile, I study a final-offer arbitration game in which two parties simultaneously submits offers for each of the two or more units in which the item in dispute has been divided. The arbitrator is limited to choose one party’s offer or the other for each unit. While the introduction of multiple offers allows the arbitrator to get closer to her ideal settlement it may prompt an arbitrarily large divergence between the parties’ offers. The latter, however, does not affect the arbitrator’s ability to learn from the offers.Final-offer arbitration, price regulation, Nash equilibrium