The Liberal Democrats have played the Conservatives and the Labour Party off against each other brilliantly.  While negotiating openly with the Conservatives, the Liberal Democrats were secretly talking to the Labour Party.

It was always clear that the game resembles an auction with two bidders, the Conservatives and Labour, and one object for sale, the Liberal Democrats.  The value that can be extracted by the Liberal Democrats as in classical auction theory depends on the bid of the second-highest bidder.  As I suggested in an earlier post, the Labour Party is the weak bidder as it got less votes in the General Election.  But Clegg’s masterstroke has been to strengthen the value of Labour by pressuring Brown to step aside, which he did today.  This immediately led to a stronger bid by the Conservatives: they are open to allowing a referendum on a change in the voting procedure used to elect Members of Parliament.  This is a cause dear to the hearts of the Liberal Democrats who cannot get many seats in parliament otherwise.

Has Labour leap-frogged the Conservatives as the strong bidder?  At least pretending this is the case is the next stratagem available to the Liberal Democrats to extract maximum concessions from the Conservatives.  The Conservatives will send out their right-wingers to show they won’t offer any more and the Liberal Democrats will send out their left-wingers to signal a better offer is necessary.  Some members of Labour may prefer to be in opposition.  The next government will have to make huge cuts in spending to rein in the deficit.  Better to wait on the sidelines and pick up the pieces in a few years.  There are so many layers to this it is hard to keep up!