An Offer You Can't Refuse: Early Contracting with Endogenous Threat

Jullien, Bruno, Pouyet, Jérôme and Sand-Zantman, Wilfried (2017) An Offer You Can't Refuse: Early Contracting with Endogenous Threat. RAND Journal of Economics, 48 (3). pp. 733-748.

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Official URL: http://tse-fr.eu/pub/31301

Abstract

We analyze early contracting when a seller has private information on the future gains from trade and the buyer can bypass. Despite ex-post trade occurring under complete information and being efficient, early negotiation with an informed seller allows the uninformed buyer to improve her bargaining position. We show that the buyer can divide seller's types so that bypass becomes a credible threat. While some sellers accept because they gain more than by trading ex-post, others accept only because they fear that rejection would reveal too much information. Equilibrium payoffs are characterized and are shown to have a close connection with ratifiable equilibrium payoffs.

Item Type: Article
Language: English
Date: 2017
Refereed: Yes
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 05 Jan 2017 15:59
Last Modified: 10 Apr 2018 13:00
OAI ID: oai:tse-fr.eu:31301
URI: http://publications.ut-capitole.fr/id/eprint/22674

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