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Bargaining and Search with Incomplete Information about Outside Options

In: Bargaining in the Shadow of the Market Selected Papers on Bilateral and Multilateral Bargaining

Author

Listed:
  • Kalyan Chatterjee

    (Smeal College of Business Administration, Department of Management Science & Information Systems, The Pennsylvania State University, University Park, Pennsylvania 16802, USA)

  • Ching Chyi Lee

    (Faculty of Business Administration, Department of Decision Sciences and Managerial Economics, The Chinese University of Hong Kong, Shatin, New Territories, Hong Kong)

Abstract

This paper considers a model of bargaining in which the seller makes offers and the buyer can search (at a cost) for an outside option; the outside option cannot be credibly communicated, and the seller's offer is recallable by the buyer for one period. There are essentially two equilibrium regimes. For sufficiently high search cost, the game ends immediately; otherwise the search occurs in equilibrium. Compared to the case where the buyer can communicate his outside option, the seller is worse off, and the game results in search for a smaller set of values of the search cost, i.e., less equilibrium delay.

Suggested Citation

  • Kalyan Chatterjee & Ching Chyi Lee, 2013. "Bargaining and Search with Incomplete Information about Outside Options," World Scientific Book Chapters, in: Bargaining in the Shadow of the Market Selected Papers on Bilateral and Multilateral Bargaining, chapter 2, pages 15-49, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814447577_0002
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