Career Concerns of Bargainers

This article studies strategic bargaining in which a seller and a buyer are each represented by an agent. Potential agents differ in their ability to obtain information about the other party`s reservation price; neither principal knows the other's reservation price or her agent's type. Agents are motivated by career concerns; they want to be perceived as skilled bargainers by their principals. In equilibrium, skilled agents use their private information optimally, while unskilled agents randomize between aggressive and soft price bids, attempting to imitate skilled types. We compare open-door bargaining, in which principals can observe the entire bargaining game as well as its outcome, with closed-door bargaining, in which they observe only the outcome. We show that agents unambiguously bargain more aggressively with open doors than behind closed doors, which leads to a less efficient bargaining outcome. Their principals may therefore prefer to let their agents bargain behind closed doors