STRATEGIC BARGAINING IN THE VARIABLE THREAT GAME

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