Price negotiation under uncertainty

This paper examines supply contract negotiation when buyer's revenue and seller's cost are uncertain. In these circumstances, both the seller and the buyer have an option to determine when to sell and buy, which may influence negotiation outcomes. Thus, we developed a bilateral negotiation model to derive the optimal selling (buying) rule considering the option. Our results show that the options of waiting to sell and to buy (1) narrow the traditional zone of possible agreement and (2) lower the probability of negotiation agreement. It is also shown that impasses can occur due to uncertainty, even when a purchase price is lower than the buyer's future revenue and higher than the seller's future cost. (C) 2009 Elsevier B.V. All rights reserved.