Group bargaining with representation

Abstract

We study a strategic bargaining model where two groups of

individuals first choose their representatives, who then bargain

with each other using a standard alternating-offer protocol, and

then the shares of the members of a group are determined by a

similar n-person bargaining process within the group. We show

that there exists a unique perfect equilibrium outcome of this

three-stage game when the breakdown probabilities of both the

inter-group bargaining and intra-group bargaining are small. In

equilibrium, each group selects as its representative an individual

who has the greatest marginal gain from increasing the groups

share.