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Sequential Bargaining Under Asymmetric Information

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  • Sanford J. Grossman
  • Motty Perry

Abstract

We analyze an infinite stage, alternating offer bargaining game in which the buyer knows the gains from trade but the seller does not. Under weak assumptions the game has a unique candidate Perfect Sequential Equilibrium, and it can be solved by backward induction. Equilibrium involves the seller making an offer which is accepted by buyers with high gains from trade, while buyers with medium gains reject and make a counteroffer which the seller accepts. Buyers with low gains make an unacceptable offer, and then the whole process repeats itself, Numerical simulations demonstrate the effects of uncertainty on the length of bargaining.

Suggested Citation

  • Sanford J. Grossman & Motty Perry, 1986. "Sequential Bargaining Under Asymmetric Information," NBER Technical Working Papers 0056, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberte:0056
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