Bargaining for Open Skies

Abstract

In this paper we analyze the bargaining problem between countries when negotiating bilateral air service agreements. To do so, we use the methods of bargaining and game theory. We give special attention to the case where a liberal minded country is trying to convince a less liberal country to agree to bilateral open skies, and the liberal country might also unilaterally open up its market. The following analysis is positive in the sense that the results help explain and predict the outcome of negotiations under different payoffs and structures of the bargaining process. They are normative in the sense that adequate manipulation of the bargaining conditions can ensure a desired outcome.