Commitment and compromise in bargaining

This paper studies observable and irrevocable commitment in bargaining. We investigate when commitment tactics can cause an impasse and when compromise is feasible. In the static model in which a player’s commitment decision is made simultaneously with his choice of bargaining stance, compromise becomes unattainable (Ellingsen and Miettinen, 2008). We first analyze a static bargaining model, in which the players decide whether to attempt commitment after announcing their demands. In contrast to the aforementioned strong result, ourmodel accommodates both incompatible commitments and compromises as equilibriumoutcomes.We then extend our analysis to a dynamic setting. It is shown that compromise is possible if the players can alter their demands quickly and the chances of successful commitment are low. © 2010 Elsevier B.V. All rights reserved.