TACIT BARGAINING IN INTERNATIONAL-RELATIONS - A GAME MODEL AND A CASE-STUDY

The authors develop a characterization of subgame perfect equilibrium strategies in discounted repeated games that highlights a class of str ategies called countervailing. When using countervailing strategies, t he players focus on manipulating the other side's payoff to induce his cooperation. These strategies do not require one player to entertain specific expectations about the strategic choice of the other. For thi s reason, countervailing strategies are promising vehicles for tacit b argaining. The authors test their relevance using a case of internatio nal trade-Japan's penetration of the U.S. automobile market in the ear ly 1980s. The empirical section provides evidence of the tacit bargain ing behavior that the model predicts.