Efficient non-cooperative bargaining despite keeping strategic information private

Abstract

The preferred method for negotiating joint value-added activities, such as e.g. licensing, co-venturing or supply chain expansion, is cooperative bargaining, where agents act rationally and have perfect information, i.e., information sharing occurs. In such settings, however, stronger partner often insist on keeping their valuable information private and thus cooperative bargaining cannot occur due to the lack of information sharing. Though, non-cooperative bargaining is usually assumed to be inefficient. Based on a game-theoretic real options model, we develop a contractual solution that allows the proposer to keep its valuable information private while at the same time motivates the other partner to act in a timely and efficient manner, that is, to be Pareto-efficient.