The Art and Economics of International Negotiations

Abstract

This paper offers a new theoretical model which combines game theory and cultural bargaining behavior. It is based on the framework of activity-based cultural types called linear-active (time-is-money approach), multi-active (negotiation-is-an-art approach) and reactive (building-up-trust approach) categories of culture. The complexities of international negotiations can be analyzed by using an activity-based approach with game theoretic bargaining models. In order to come up with useful results, the paper takes on the perspective of multi-active bargaining types as sellers and buyers which shows different outcomes, respectively. The article is structured into the literature review, the description of activity-based bargaining types, the game trees (time lines) and the models of uncertainty. In terms of solution concepts we are dealing with Perfect Bayesian Equilibria (PBE) and a new way of solving three-type problems. The results of the games show the equilibrium types and a possibility to circumvent problems in international business negotiations which are related to different time perceptions and strategic behavior in this respect. It is therefore important to anticipate the deadlocks, stalemates and even break-ups when bargaining with culturally programmed types. We are, now, able to show that international negotiations are prone to fail due to incompatibilities and lack of knowledge of different cultural bargaining strategies.