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Bargaining, search, and outside options

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  • Gantner, Anita
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    Abstract

    This paper studies a two-sided incomplete information bargaining model between a seller and a buyer. The buyer has an outside option, which is modeled as a sequential search process during which he can choose to return to bargaining at any time. Two cases are considered: In Regime I, both agents have symmetric information about the search parameters. We find that, in contrast to bargaining with complete information, the option to return to bargaining is not redundant in equilibrium. However, the no-delay result still holds. In Regime II, where agents have asymmetric information about the outside option, delay is possible. The solution characterizes the parameters for renegotiation and those for search with no return to the bargaining table.

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    File URL: http://www.sciencedirect.com/science/article/B6WFW-4PPW743-2/1/816dd8efadaf4b1e3aeaf01890e2ef54
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    Bibliographic Info

    Article provided by Elsevier in its journal Games and Economic Behavior.

    Volume (Year): 62 (2008)
    Issue (Month): 2 (March)
    Pages: 417-435

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    Handle: RePEc:eee:gamebe:v:62:y:2008:i:2:p:417-435

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    Web page: http://www.elsevier.com/locate/inca/622836

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    References

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    1. Bester,Helmut, 1986. "Bargaining,Search costs and equilibrium price distribution," Discussion Paper Serie A 49, University of Bonn, Germany.
    2. Lippman, Steven A & McCall, John J, 1976. "The Economics of Job Search: A Survey: Part I," Economic Inquiry, Western Economic Association International, vol. 14(2), pages 155-89, June.
    3. Arial Rubinstein & Asher Wolinsky, 1985. "Equilibrium in a Market with Sequential Bargaining," Levine's Working Paper Archive 623, David K. Levine.
    4. Ordover, Janusz A & Rubinstein, Ariel, 1986. "A Sequential Concession Game with Asymmetric Information," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 879-88, November.
    5. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 52(6), pages 1351-64, November.
    6. Dale T. Mortensen, 1978. "Specific Capital, Bargaining, and Labor Turnover," Discussion Papers 320, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    7. Lippman, Steven A & McCall, John J, 1976. "The Economics of Job Search: A Survey," Economic Inquiry, Western Economic Association International, vol. 14(3), pages 347-68, September.
    8. Peter Cramton, 1992. "Strategic Delay in Bargaining with Two-Sided Uncertainty," Papers of Peter Cramton 92res, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
    9. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    10. Arnold, Michael A & Lippman, Steven A, 1998. "Posted Prices versus Bargaining in Markets with Asymmetric Information," Economic Inquiry, Western Economic Association International, vol. 36(3), pages 450-57, July.
    11. Chatterjee, Kalyan & Lee, Ching Chyi, 1998. "Bargaining and Search with Incomplete Information about Outside Options," Games and Economic Behavior, Elsevier, vol. 22(2), pages 203-237, February.
    12. Sobel, Joel & Takahashi, Ichiro, 1983. "A Multistage Model of Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 50(3), pages 411-26, July.
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    Cited by:
    1. Feri, Francesco & Gantner, Anita, 2011. "Bargaining or searching for a better price? - An experimental study," Games and Economic Behavior, Elsevier, vol. 72(2), pages 376-399, June.
    2. Kalyan Chatterjee & Kaustav Das, 2013. "Decentralised Bilateral Trading in a Market with Incomplete Information," Discussion Papers 1313, Exeter University, Department of Economics.

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