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Incomplete Information Bargaining with Outside Opportunities

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  • Tirole, Jean
  • Levine, David
  • Fudenberg, Drew

Abstract

We consider two kinds of ‘outside opportunity’ that a seller of an indivisible good might have: selling to a different buyer and consuming the good herself. In both models the seller is uncertain about the buyer's valuation, and becomes more pessimistic over time. When the seller becomes sufficiently pessimistic, she prefers the outside opportunity, so she will not bargain indefinitely with the current buyer. Despite the resulting finite-horizon nature of negotiations, the link between the buyer's willingness to accept an offer and the seller's eagerness to go "outside" generates multiple equilibria.

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File URL: http://dash.harvard.edu/bitstream/handle/1/3196301/fudenberg_incompleteinformation.pdf
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Bibliographic Info

Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 3196301.

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Date of creation: 1987
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Publication status: Published in Quarterly Journal of Economics
Handle: RePEc:hrv:faseco:3196301

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  1. Faruk Gul & Hugo Sonnenschein & Robert Wilson, 2010. "Foundations of Dynamic Monopoly and the Coase Conjecture," Levine's Working Paper Archive 232, David K. Levine.
  2. Fudenberg, Drew & Tirole, Jean, 1983. "Sequential Bargaining with Incomplete Information," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 50(2), pages 221-47, April.
  3. David M Kreps & Robert Wilson, 2003. "Sequential Equilibria," Levine's Working Paper Archive 618897000000000813, David K. Levine.
  4. Drew Fudenberg & David K. Levine & Jean Tirole, 1985. "Infinite-Horizon Models of Bargaining with One-Sided Incomplete Information," Levine's Working Paper Archive 1098, David K. Levine.
  5. Drew Fudenberg & David Levine & Jean Tirole, 1985. "Sequential Bargaining with Many Buyers," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 366, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Riley, John & Zeckhauser, Richard, 1983. "Optimal Selling Strategies: When to Haggle, When to Hold Firm," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(2), pages 267-89, May.
  7. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(2), pages 314-32, April.
  8. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 15(1), pages 143-49, April.
  9. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, Econometric Society, vol. 52(6), pages 1351-64, November.
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Cited by:
  1. Chemla, Gilles & Faure-Grimaud, Antoine, 1998. "Dynamic Adverse Selection and Debt," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2037, C.E.P.R. Discussion Papers.
  2. Chatterjee, Kalyan & Lee, Ching Chyi, 1998. "Bargaining and Search with Incomplete Information about Outside Options," Games and Economic Behavior, Elsevier, Elsevier, vol. 22(2), pages 203-237, February.
  3. Castillo, Marco & Petrie, Ragan & Torero, Maximo & Vesterlund, Lise, 2013. "Gender differences in bargaining outcomes: A field experiment on discrimination," Journal of Public Economics, Elsevier, Elsevier, vol. 99(C), pages 35-48.
  4. Yerokhin Oleg, 2011. "The Social Cost of Blackmail," Review of Law & Economics, De Gruyter, De Gruyter, vol. 7(1), pages 337-351, December.
  5. Chatterjee, Kalyan & Dutta, Bhaskar, 2006. "Markets with Bilateral Bargaining and Incomplete Information," The Warwick Economics Research Paper Series (TWERPS) 762, University of Warwick, Department of Economics.
  6. Luca Anderlini & Leonardo Felli, 1998. "Costly Bargaining and Renegotiation - (Now published in Econometrica, 69(4) (March 2001), pp. 377-411.)," STICERD - Theoretical Economics Paper Series, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE 361, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  7. Bester, H., 1991. "Bargaining V.S. Price Competition in a Market with Quality Uncertainty," Papers, Tilburg - Center for Economic Research 9113, Tilburg - Center for Economic Research.
  8. Chemla, G., 1999. "L'impact de la negociation et des prises de controle sur l'ampleur de l'effet de Cliquet," Papers, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor. 99-19, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor..
  9. Roman Inderst, 2008. "Dynamic Bilateral Bargaining under Private Information with a Sequence of Potential Buyers," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 220-236, January.
  10. Randolph Sloof, 2003. "Price-setting Power versus Private Information," Tinbergen Institute Discussion Papers 03-099/1, Tinbergen Institute.
  11. Calvo-Armengol, Antoni, 1999. "A note on three-player noncooperative bargaining with restricted pairwise meetings," Economics Letters, Elsevier, Elsevier, vol. 65(1), pages 47-54, October.
  12. 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.
  13. Schweinzer, Paul, 2010. "Sequential bargaining with common values," Journal of Mathematical Economics, Elsevier, vol. 46(1), pages 109-121, January.
  14. repec:dgr:uvatin:2003099 is not listed on IDEAS
  15. Santiago Sanchez-Pages, 2009. "Bargaining and Conflict with Incomplete Information," ESE Discussion Papers, Edinburgh School of Economics, University of Edinburgh 191, Edinburgh School of Economics, University of Edinburgh.

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