Question

Bargaining can be viewed strategically, as a game of chicken where the ability to commit to a position allows a player to capture the lion’s share of the gains from trade. Do you agree with this concept? What have you observed about bargaining situations?

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Answer 1

I do agree with this concept. Bargaining can be viewed as a game of chicken where the ability to commit to a position allows a player to capture the lion’s share of the gains from trade. The ability to commit grants the player the opportunity to change or influence the belief/actions of the other player to his advantage. For example in a two firm Cournot game if one firm has the first mover advantage it can produce more and thus capture more of the market. Consequently, his profits will be more as compared to the follower (other firm). In the chicken game, the bargaining scenario is symmetric i.e. both the players can use similar tactics to influence the other. However, some situations are not symmetric. For example in a hostage situation, the authorities and the kidnappers cannot use similar bargaining tactics. The hostage holders have an advantage over the authorities which they can exploit to their advantage.