War of Attrition II by RodneySooialo

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									Negotiating
McMillan Chapter 6


Using Information Strategically
Introduction
 Negotiation usually take place in uncertain
  environments:
      Who are you negotiating with?
 Asymmetric information implies that:
    Some negotiations might breakdown
    There could be a source of bargaining power
    It requires more “creativity” on the part of the
     negotiators
    It might create delays…that are optimal!!!




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Informational disadvantage I
 Your opponent holds some information that is
  useful for you
      Example: you are the seller facing fanatics and
       normal customers
      You want to screen your opponents
 You offer a smaller share today than tomorrow
    Justification for sales
    It requires that the those that want to deal early are
     those that hold the information you desire
        Normal customers are more impatient fanatics

        Those dealing today are more impatient than those
         dealing tomorrow

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Informational disadvantage II
 Sometimes commitment is preferred than trying to
  figure out who they are:
      Example: if there are a lot of fanatics you are willing
       to pay a seller to credibly fix the price
      In Bargaining you are stubborn on the offered share
 This depends on
    How much you value the present
    How much your opponent values the present
    How willing are you to reach a situation where no
     agreement is possible
 Being stubborn sometimes is rational!!!
 Not dealing sometimes is rational!!!
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Informational advantage I (?)
 You hold some information that is useful to your opponent
    Example: you are the fanatic and you want to tell that to
     the seller
    You want to signal who you are
 You take an action that is costly for you and is more costly for
  you if you are lying:
    Example: is more costly for normal customers to offer a
     high price than it is for fanatics
    Put your money where your mouth is
 For you to convey information is costly: private information
  sometimes is a curse
    When is this the case?


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Informational advantage II (?)
 If you are on the side of the negotiators that hold private
    information
       Example: you are worker
   There are many types of people on your side
       Example: different productivity
   You can use signal to say who you are:
       Example: getting a degree, work for relatively small pay
        but increasing over time (corporate career), work for free
        sometimes (summer jobs, trainees).
   Sending signals is costly but allows you to separate yourself
    from other people that might reduce your payoff even more.
   Private information is a blessing (you separate) and a curse
    (you need to separate).
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Signals
 What is a signal?
 It can be anything that:
    It is costly.
    It is more costly for those that do not want to
      separate themselves.
    It is known that it works as a signal.
 There is, in a sense, a notion of “irrationality”:
  anything is possible.
 The irrationality comes from trying to match
  economic use of signals with the common sense of
  signals.
      Example: quiche and beer.
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Signals: It is known that it works as a
signal
 These raise the question:
    How do we know this?
 Answer: beliefs!!!!
    An awful equilibrium:
        I believe that all my opponents are tough.

        They will never offer me anything in any negotiation.

        I get into a negotiation and they offer me nothing.

        “See…they are all tough!!!!”.

    If your beliefs are known then you are driving that
     result
 Conclusion: show what you think when it works in
  your favor.
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Case: cheap=expensive
 Firms usually give things away in order to convince people
  that the quality is good.
    This is a costly signal…therefore they must be good.
    If things go bad then it must be a mistake because…only
      good quality goods are given for free.
    PROBLEM: also low quality goods are cheap.
 This is not a good signal. Not even high prices are a good
  signal.
    Example: market for clothes.
 To establish quality the only signal is that you’ve been in the
  market for a long time: reputation.
 Signaling when there are multiple rounds can be difficult
  because of those that enter for a few rounds.
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Negotiating
McMillan Chapter 7


International Trade Agreements
The Theory (?)
 Free trade is good
    Market forces drive investment and consumption
       Efficiency is achieved

 Free trade is bad
    Market forces drive investment and consumption
       Equality is not achieved

 Free trade causes some problems in the short run
    Adjustments to new competition
    Unemployment in some sectors and shortages in
     some others:
       USA: a lot of social scientists and very few
        mathematicians and engineerings

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The Fact
 The World Trade Organization has succeeded in
  reducing tariffs
 Other barriers still remain
      Government regulations
      Subsidies
      Culture (?)
 Many reasons:
   Political games inside the countries
   Strategic use to develop new industries

 Is there some rationale on barriers to remain
  active?
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The WTO game
 Many players
   What I do affect many people.
   I am affected sometimes even though I am not in the
    negotiation.
 Prisoners dilemma:
    If everybody decides to open their economies…
    It is a good idea for me to close it a little bit

 No law: except…
 Repeated interactions:
    Except for very few cases: all the countries remain
     on earth.
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Repeated interactions
 Stick and carrots
    Sticks: increasing my barriers
    Carrots: lowering my barriers

 New law:
    If we all behave we try to give everybody a carrot
    If somebody misbehave: we all give him sticks.

 The very same organizations requires the use of
  barriers
 How it works?
      As long as it is clear what rewards a carrot and a
       stick we all try to follow the carrot path
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Problem
 It is not always clear to figure out when somebody
  has raise his barriers or not:
      Is “buy American” a barrier or not?
      Is “dependence on foreign” oil a barrier or not?
      Are the “Green Laws” a barrier or not?
 There are many possible outcomes due to many
  countries and many directions of bargaining
 There is incomplete information:
      Breakdown and delayed



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How it works I
 Agreement on reciprocity (focal point?):
    I have to concede on a particular amount of money
       affected:
         The change in the tariff multiplied by the imports
           affected
 WHAT?
    It does not make sense in economic terms:
         It has to measure the future impact and the past
           impact
    It might not be even relevant
 It is useful as a coordination device:
    Remember the 50-50 split


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How it (does not) works II
 Non tariffs barriers lack this coordination device:
      Negotiations are wide open and all the incomplete
       information plays an important role.
 It increases incentives for countries to develop techniques to
  increase their bargaining position:
     Increasing the opponent cost of not conceding by creating
       fast retaliation
     Creating internal commitment to retaliate and internal
       commitments to increase the outside option (use of non
       trade barriers).
 Important: agreements are only sustained if there is a threat
  fro breaking them:
     Sticks need to survive if we rely on mutual agreements
       without international courts.

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