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Bargaining, Search, and Outside Options

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  • Anita Gantner

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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 also choose to return to bargaining at any time. Two cases 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://eeecon.uibk.ac.at/wopec2/repec/inn/wpaper/2007-16.pdf
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    Bibliographic Info

    Paper provided by Faculty of Economics and Statistics, University of Innsbruck in its series Working Papers with number 2007-16.

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    Length: 31
    Date of creation: Aug 2007
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    Handle: RePEc:inn:wpaper:2007-16

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    Keywords: Bargaining; Two-sided Incomplete Information; Outside Option; Search;

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    1. Bester,Helmut, 1986. "Bargaining,Search costs and equilibrium price distribution," Discussion Paper Serie A, University of Bonn, Germany 49, University of Bonn, Germany.
    2. Lippman, Steven A & McCall, John J, 1976. "The Economics of Job Search: A Survey," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 14(3), pages 347-68, September.
    3. 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.
    4. Dale T. Mortensen, 1982. "The Matching Process as a Noncooperative Bargaining Game," NBER Chapters, in: The Economics of Information and Uncertainty, pages 233-258 National Bureau of Economic Research, Inc.
    5. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
    6. 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.
    7. 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.
    8. Ordover, Janusz A & Rubinstein, Ariel, 1986. "A Sequential Concession Game with Asymmetric Information," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 101(4), pages 879-88, November.
    9. Arial Rubinstein & Asher Wolinsky, 1985. "Equilibrium in a Market with Sequential Bargaining," Levine's Working Paper Archive 623, David K. Levine.
    10. Arnold, Michael A & Lippman, Steven A, 1998. "Posted Prices versus Bargaining in Markets with Asymmetric Information," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 36(3), pages 450-57, July.
    11. Chatterjee, Kalyan & Samuelson, Larry, 1987. "Bargaining with Two-Sided Incomplete Information: An Infinite Horizon Model with Alternating Offers," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 54(2), pages 175-92, April.
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