Coordination and bargaining power in contracting with externalities

Building on Genicot and Ray (2006) we develop a model on non-cooperative bargaining that combines the two main approaches in the literature of contracting with externalities: the o¤er game (in which the principal makes simultaneous o¤ers to the agents) and the bidding game (in which the agents make simultaneous o¤ers to the principal). Allowing for agent coordination, we show that the outcome of our bargaining procedure may di¤er remarkably from those of the o¤er and the bidding games. In particular, we …nd that bargaining can break buyers’coordination and that the principal’s payo¤ can be decreasing in his own bargaining power.