Logo
DeutschClear Cookie - decide language by browser settings
Bartling, Björn and Schmidt, Klaus M. (October 2012): Reference Points in Renegotiations: The Role of Contracts and Competition. Discussion Papers in Economics 2012-27

This is the latest version of this item.

[img]
Preview

PDF

291kB

Abstract

Several recent papers argue that contracts provide reference points that affect ex post behavior. We test this hypothesis in a canonical buyer-seller relationship with renegotiation. Our paper provides causal experimental evidence that an initial contract has a highly significant and economically important impact on renegotiation behavior that goes beyond the effect of contracts on bargaining threatpoints. We compare situations in which an initial contract is renegotiated to strategically equivalent bargaining situations in which no ex ante contract was written. The ex ante contract causes sellers to ask for markups that are 45 percent lower than in strategically equivalent bargaining situations without an initial contract. Moreover, buyers are more likely to reject given markups in renegotiations than in negotiations. We do not find that these effects are stronger when the initial contract is concluded under competitive rather than monopolistic conditions.

Available Versions of this Item