NOW OR LATER ?–An Analysis of the Timing of Threats in Bargaining

The variable threat-bargaining model of Nash (1953) assumes that threats in the senseof binding commitments as to what one will do if bargaining ends in conflict, are chosenbefore bargaining. By comparison, late threats to be chosen after bargaining end in conflict,appear more natural and would be self-enforcing, i.e., require no commitment power. Insteadof exogenously imposing the timing of threats, they are derived endogenously as in indirectevolution or endogenous timing. Based on a duopoly market, we first derive the equilibriumfor all possible constellations regarding the timing of threats. From these results we can showthat the evolutionary analysis surprisingly justifies the early timing of threats as suggestedby Nash (1953).