Bargaining over a Divisible Good in the Market for Lemons
AbstractA seller dynamically sells a divisible good to a buyer. It is common knowledge that there are gains from trade and that the gains per unit are decreasing. Payoffs are interdependent as in Akerlof's market for lemons. The seller is informed about the good's quality. The buyer makes an offer in every period and learns about the good's quality only through the seller's behavior. We characterize the stationary equilibrium when the time between offers is small. The owner of a high-quality good sells it in dribs and drabs, whereas the owner of a low-quality good constantly randomizes between selling small pieces and accepting an offer for all the remaining units. We use this characterization to analyze the limiting equilibrium outcome as the good becomes more divisible. We prove that there is slow trading: a valuable good is smoothly sold over time. In contrast, the good is never partially sold when gains per unit are increasing.
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Bibliographic InfoPaper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 312.
Length: 66 pages
Date of creation: 2013
Date of revision:
bargaining; divisible objects; interdependent valuations; market for lemons.;
Find related papers by JEL classification:
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-15 (All new papers)
- NEP-COM-2013-12-15 (Industrial Competition)
- NEP-CTA-2013-12-15 (Contract Theory & Applications)
- NEP-GTH-2013-12-15 (Game Theory)
- NEP-MIC-2013-12-15 (Microeconomics)
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