Strategic bargaining in the variable threat game

Summary.

In this paper the alternating offer model with an exogenous risk of breakdown is taken to explicitly model the bargaining process underlying the variable threat game (Nash, Econometrica, 1953). A modified version of the variable threat game without commitment is also analysed within a dynamic context. The limit set of subgame perfect equilibria is characterized in both dynamic versions. The analysis gives rise to different results than in the two standard models. By making additional assumptions the original results can be regained, indicating that these are implicitly present in the standard analysis.