Bargaining with asymmetric externalities

Abstract

We consider sequential bargaining between three firms that are all essential in creating a surplus. One of the firms is dominant in the sense that it ultimately decides whether the surplus will be created. The other firms have an incentive to get a large share of the pie for themselves, but leaving enough for the dominant firm that it finds it profitable to create the surplus. Hence, the smaller firms have pref- erences over who they take their share from. Of all of the bargaining protocols that we consider, we identify the set of Pareto optimal pro- tocols, and show which of them will be uniquely preferred by each firm.