3. Reputational Bargaining

The chapter delves into the intricate world of reputational bargaining, a theory that examines how commitment to specific bargaining positions can shape negotiation outcomes. It begins by tracing the evolution of noncooperative bargaining theory, highlighting the pioneering work of Binmore, Osborne, and Rubinstein. The core of the chapter focuses on the seminal Abreu-Gul (AG) model, which introduces general bargaining protocols and multiple commitment types. This model predicts a war of attrition structure, where uncommitted players mimic committed types before eventually conceding. The chapter also explores extensions of the AG model, such as endogenous commitment demands and nonstationary types. These extensions offer deeper insights into the dynamics of bargaining and the role of commitment. Furthermore, the chapter discusses applications of reputational bargaining in various economic environments, such as search markets and mediation, and presents experimental evidence that supports the theoretical predictions. The chapter concludes by highlighting open questions and potential future directions for research in this field.