Public vs. Private Negotiations in Bilateral Relationships.pdfVIP

Public vs. Private Negotiations in Bilateral Relationships∗ Silvana Krasteva Huseyin Yildirim Department of Economics Department of Economics Duke University Duke University Box 90097 Box 90097 Durham, NC 27708 Durham, NC 27708 E-mail: silvana.krasteva@ E-mail: yildirh@ May 11, 2009 Abstract The preference between public and private negotiations for a buyer who sequentially visits two suppliers is examined. It is shown that the buyer weakly prefers to conduct private negotiations in order to create strategic uncertainty about the trade history. With substitute goods, such uncertainty is valuable only when price offers have short expiries that prevent a head-to-head supplier competition. With complementary goods, strategic uncertainty is valuable to the extent that price coordination becomes a con- cern for suppliers, which is likely to be the case when suppliers possess relatively high bargaining powers; price offers have short expiries; and/or goods are weak complements. The effects of mandatory disclosure laws, extended return policies, and purchasing al- liance formation on trade efficiency are also discussed. JEL Classifications: C70, L23. Keywords: public negotiations, private negotiations, bargaining power, coordina- tion. 1 Introduction In a variety of bargaining situations a central agent performs bilateral negotiations with several others to acquire goods and services. Examples include a manufacturer