Alternating Offer Bargaining Game with Inequity Aversion and Bargaining Power
Bargaining plays an important role in economics.Bargaining is the case of economic interaction where the market only plays a role in setting the bounds of discussion and the bargaining outcomes are determined by the strategic interaction of the players.In real bargaining situations,the critical issue confronted by players is how to reach an agreement for cooperation before the actual cooperation.Each player prefers agreement to disa-greement,while each player has a strong desire to reach an agreement on the most favorable division for himself.A source of the cost incurred by players comes from the following facts that bargaining between players is time consuming and that time is valuable to players.Moreover,bargaining process involves players in making offers and counteroffers to each other.The Rubinstein bargaining formally explores the role of players'discount rates that reflect players'value for time in bargaining process.The approach introduced by Bolton explains numerous experimental findings on bargaining game.However,the above two models cannot explain why players in some situations are willing to pay for fair treatment.Some scholars have explored the influence of inequity aversion through experiments.On the theoretical level,the inequity aversion model proposed by Fehr and Schmidt incor-porates more conventional fairness into the utility function of participants.Ewerhart modified the Fehr and Schmidt's model to stress the fairness but not the outright altruism,in which a common agreement reached by the two players is regarded as their own reference level,and such reference points cannot capture endogenously bargaining power.To reflect the influence of bargaining power on the fair reference level,this paper adopts Nash bargaining solution as players'fairness reference levels.Nash negotiation solutions satisfy Pareto efficiency,symmetry axiom,affine invariance and independence of irrelevant alternatives.Nash bargaining solution can balance fair-ness and efficiency if in 2-person bargaining game the payoff for each player lies between the infimum and supre-mum of the assigned payoffs by the egalitarian and utilitarian solutions.It formulates how much one should be assigned from the overall material payoff.In view of this,in Rubinstein negotiation game,this paper considers the situation in which players have inequity aversion preference,in which Nash negotiation solution serves as the fair reference level of players to reflect the influence of bargaining power.On this basis,the perfect equilibrium of sub-game is constructed,and the existence and uniqueness of the perfect equilibrium of sub-game is proved.This paper explores the influence of participants'inequity aversion preference and bargaining power on the perfect equilibrium of subgame.This paper adopts Nash bargaining solution as players'fairness reference levels,which is a new perspective to analyze the effect of fairness preferences on the alternating-offer bargaining.The research results of this paper are mainly divided into the following three aspects:First,when the equi-librium offer of two players makes the share of the player(who makes the offer first)lower than its fair reference level,that player will benefit from the marginal disutility generated by the inequity aversion preference of the two players.Second,when the equilibrium offer of two players causes the share of the player(who makes the offer first)to be higher than its fair reference level,that player will suffer a loss due to the marginal disutility genera-ted by the inequity aversion preference of the two players.In the two cases,higher bargaining power may be detrimental to the participants.Finally,as the time interval between two consecutive offers approaches zero,the player's equilibrium share is independent of the absolute magnitude of the two players'discount rates and only depends on the ratio of the two players'discount rates.The management implications provided by the research results of this paper are as follows:when the quotation of two players is lower(or higher)than the fair reference level,the higher the level of inequity aversion of the players,the higher(or the lower)the offer the player who makes the offer first should make.And whether a participant with higher bargaining power should make a higher offer depends on the degree of inequity aversion and discount factor of the participant.Therefore,the players should weigh the inequity aversion preference,bargaining power and discount factor of the two players compre-hensively when making the offer,rather than simply following the rule that the offer in the current negotiation stage is higher than that in the past negotiation stage.In this paper,we investigate Rubinstein negotiation games with inequity aversion preference,in which fair-ness preference is independent of time.In some cases,this assumption is reasonable,while in other cases it may not be,and the participants'share of the proceeds depends on the negotiation process.Therefore,the influence of inequity aversion preference on Rubinstein negotiation with historical dependence can be further explored in future studies.
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