The effects of third-party transfers in sequential anchored bargaining

Abstract

We analyze a bargaining game where an anchor player bargains sequentially with n non-anchor players over the division of a pie in the presence of third-party transfers and show that there exists a unique perfect equilibrium. A lump-sum transfer is jointly shared by all players, while a transfer proportional to a player's share affects only the party that has to make that transfer. When lump-sum transfers are zero, the anchor player and each non-anchor player bargain as if there is no further bargaining. It turns out that the anchor player and the last non-anchor player are in the most disadvantageous position with our bargaining protocol.