# An application of wage bargaining to price negotiation with discount factors varying in time

Working paper

Issue number:

2013.66

Publisher:

Centre d’Economie de la Sorbonne

Year:

2013

We consider a non-cooperative price bargaining model between a monopolistic producer and a monopsonic consumer. The innovative element that our model brings to the existing literature on price negotiation concerns the parties’ preferences which are not expressed by constant discount rates, but by sequences of discount factors varying in time. We assume that the sequence of discount rates of a party can be arbitrary, with the only restriction that the inﬁnite series that determines the utility for the given party must be convergent. Under certain parameters, the price negotiation model coincides with wage bargaining with the exogenous always strike decision. We determine the unique subgame perfect equilibrium in this model for no-delay strategies independent of the former history of the game. Then we relax the no-delay assumption and determine the highest equilibrium payoﬀ of the seller and the lowest equilibrium payoﬀ of the buyer for the general case. We show that the no-delay equilibrium strategy proﬁles support these extreme payoﬀs.