Payoff Uncertainty, Bargaining Power, and the Strategic Sequencing of Bilateral Negotiations

This paper investigates the sequencing choice of a buyer who negotiates with the sellers of two complementary objects with uncertain payoffs. We show that the buyer cares about the sequence only when equilibrium trade can be inefficient. In this case, the buyer begins with the weaker seller if the sellers have diverse bargaining powers. If, however, both sellers are strong bargainers, then the buyer begins with the stronger of the two. For either choice, the buyer’s sequencing is likely to increase the social surplus. We also show that the buyer may find it optimal to raise her own cost of acquiring objects by committing to a minimum purchase price or outsourcing. The firstand second-mover advantages for the sellers are also identified. JEL Classifications: C70, L23.