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Inefficient Prebargaining Search

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  • Birger Wernerfelt

Abstract

We identify conditions under which a bargainer makes inefficiently large (small) investments in a search for information about the opponent's reservation price. The analysis starts with the observation that a player will invest too much (too little) if the opponent's expected payoff is decreasing (increasing) in the probability that the player gets information. We develop comparative-static results about over- and underinvestment as a function of the efficiency and distributional properties of mechanisms, their dependence on search outcomes, and the nature of the trading problem. The results do not depend on any specific bargaining mechanism and are illustrated in several examples.

Suggested Citation

  • Birger Wernerfelt, 2012. "Inefficient Prebargaining Search," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(2), pages 211-223, June.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201206)168:2_211:ips_2.0.tx_2-e
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    Citations

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    Cited by:

    1. Liang Guo, 2023. "Gathering Information Before Negotiation," Management Science, INFORMS, vol. 69(1), pages 200-219, January.
    2. Cristina Nistor & Matthew Selove, 2020. "Pricing and Quality Provision in a Supply Relationship: A Model of Efficient Relational Contracts," Marketing Science, INFORMS, vol. 39(5), pages 939-955, September.

    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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