Commitment and Conict in Bilateral Bargaining

Building on Crawford (1982), we study a model of bilateral bargaining in which ne-gotiators can make binding commitments at a low positive cost c. Our primary solution concept is iterated strict dominance. If commitment attempts never fail, there are three solutions. In two solutions all the surplus goes to one player; in the third solution there is a high probility of conict. If commitment attempts succeed with probability q < 1, the unique solution entails conict with probability q2. When c = 0, analogous results hold if the requirement of iterated strict dominance is replaced by iterated weak dominance