Delegated bargaining and renegotiation

We examine the commitment effect of delegated bargaining when the delegatio n contract is renegotiable. We consider a seller who can either bargain fac e-to-face with a prospective buyer or delegate bargaining to an intermediar y. The intermediary is able to interrupt negotiating with the buyer to rene gotiate the delegation contract. We show that the time cost of renegotiatio n prevents a full elimination of the commitment effect of delegation. Indee d, there are always gains from delegation when the players are sufficiently patient. An extension to a search market environment shows that the gains from delegation are negatively related to the efficiency of search. (C) 200 1 Elsevier Science B.V. All rights reserved.