Finite Horizon Negotiation Games

Lutz-Alexander Busch

and Quan Wen

This paper studies the finite horizon version of the negotiation model of Busch and Wen (1995). Two players bargain over the division of a certain surplus in finitely many periods. In the absence of an agreement, players' payoffs in a period are determined by a disagreement game. The set of equilibrium payoffs is determined by backward induction. If at least one player has distinct Nash payoffs in the disagreement game, the set of subgame perfect equilibrium payoffs converges to that of the corresponding infinite horizon negotiation game as the game horizon increases to infinity. Otherwise, the finite horizon negotiation game will have a unique subgame perfect equilibrium outcome.