Working Paper: CEPR ID: DP10021
Authors: Mikhail Drugov
Abstract: This paper studies a dynamic bargaining model with informational externalities between bargaining pairs. Two principals bargain with their respective agents about the price they will pay for their work while its cost is agents' private information and correlated between them. The principals benchmark their agents against each other by making the same offers in the equilibrium even if this involves delaying or advancing the agreement compared to the autarky. When principals compete in complements this pattern is reinforced while under competition in substitutes the principals trade off the benefits of differentiation in the product market against the cost of the agents' rent.
Keywords: Adverse Selection; Bargaining; Competition; Delay; Externalities; Information
JEL Codes: C78; D82; D83; L10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| principals delay agreements (D86) | learn about the costs of their agents (L85) |
| learn about the costs of their agents (L85) | inefficiencies in contracting (D86) |
| benchmarking agents (L85) | delays that are costly due to discounting (H43) |
| nature of competition (substitutes vs. complements) (L13) | equilibrium cutoffs (D50) |
| competition in substitutes (L13) | trade-off between benchmarking agents and differentiating to increase market profits (D43) |
| informational externalities (D62) | increase or decrease efficiency in profit-maximizing equilibrium (D61) |