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Bargaining with Interdependent Values

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  • Raymond Deneckere
  • Meng-Yu Liang
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    Abstract

    A seller and a buyer bargain over the terms of trade for an object. The seller receives a perfect signal that determines the value of the object to both players, whereas the buyer remains uninformed. We analyze the infinite-horizon bargaining game in which the buyer makes all the offers. When the static incentive constraints permit first-best efficiency, then under some regularity conditions the outcome of the sequential bargaining game becomes arbitrarily efficient as bargaining frictions vanish. When the static incentive constraints preclude first-best efficiency, the limiting bargaining outcome is not second-best efficient and may even perform worse than the outcome from the one-period bargaining game. With frequent buyer offers, the outcome is then characterized by recurring bursts of high probability of agreement, followed by long periods of delay in which the probability of agreement is negligible. Copyright The Econometric Society 2006.

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    Bibliographic Info

    Article provided by Econometric Society in its journal Econometrica.

    Volume (Year): 74 (2006)
    Issue (Month): 5 (09)
    Pages: 1309-1364

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    Handle: RePEc:ecm:emetrp:v:74:y:2006:i:5:p:1309-1364

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    Cited by:
    1. Schweinzer, Paul, 2006. "Sequential bargaining with pure common values," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 137, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    2. Hulya Eraslan & Philip Bond, 2008. "Information Based Trade," 2008 Meeting Papers 1012, Society for Economic Dynamics.
    3. Ben Lester & Braz Camargo, 2011. "Trading Dynamics in Decentralized Markets with Adverse Selection," 2011 Meeting Papers 1300, Society for Economic Dynamics.
    4. Philip Bond & Hülya Eraslan, 2004. "Strategic Voting over Strategic Proposals, Second Version," PIER Working Paper Archive 07-014, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 02 Jan 2007.
    5. Philip Bond & Hulya Eraslan, 2008. "Strategic Voting over Strategic Proposals," Economics Working Paper Archive 547, The Johns Hopkins University,Department of Economics.
    6. Dang, Tri Vi, 2008. "Bargaining with endogenous information," Journal of Economic Theory, Elsevier, vol. 140(1), pages 339-354, May.
    7. Abreu, Dilip & Pearce, David G. & Stacchetti, Ennio, 0. "One-sided uncertainty and delay in reputational bargaining," Theoretical Economics, Econometric Society.
    8. Kawai, Keiichi, 2011. "Dynamic Market for Lemons with Endogenous Quality Choice by the Seller," MPRA Paper 29688, University Library of Munich, Germany.
    9. Dino Gerardi & Johannes Horner & Lucas Maestri, 2010. "The Role of Commitment in Bilateral Trade," Cowles Foundation Discussion Papers 1760, Cowles Foundation for Research in Economics, Yale University.
    10. Ennio Bilancini & Leonardo Boncinelli, 2014. "Dynamic Adverse Selection and the Supply Size," Center for Economic Research (RECent) 099, University of Modena and Reggio E., Dept. of Economics.
    11. Schweinzer, Paul, 2010. "Sequential bargaining with common values," Journal of Mathematical Economics, Elsevier, vol. 46(1), pages 109-121, January.
    12. Kaya, Ayça & Liu, Qingmin, 0. "Transparency and price formation," Theoretical Economics, Econometric Society.
    13. Fuchs, William & Skrzypacz, Andrzej, 2013. "Bridging the gap: Bargaining with interdependent values," Journal of Economic Theory, Elsevier, vol. 148(3), pages 1226-1236.

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