On the Role of Confidentiality and Deadlines in Bilateral Negotiations

Abstract

The preference between public and private negotiations for a buyer who sequentially visits two suppliers is examined. It is shown that the buyer weakly prefers to conduct private negotiations in order to create strategic uncertainty about the trade history. With substitute goods, such uncertainty is valuable only when price offers have short expiries that prevent a head-to-head supplier competition. With complementary goods, strategic uncertainty is valuable to the extent that price coordination becomes a concern for suppliers, which is likely to be the case when suppliers possess relatively high bargaining powers; price offers have short expiries; and/or goods are weak complements. The effects of mandatory disclosure laws, extended return policies, and purchasing alliance formation on trade efficiency are also discussed.