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Dynamic Bargaining with Transaction Costs

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Abstract

A buyer and seller alternate making offers until an offer is accepted or someone terminates negotiations. The seller's valuation is common knowledge, but the buyer's valuation is known only by the buyer. Impatience to reach an agreement comes from two sources: the traders discount future payoffs and there are transaction costs of bargaining. Equilibrium behavior involves either immediate trade, delayed trade, or immediate termination, depending on the size of the gains from trade and the relative bargaining costs. This contrasts with the pure discounting model where termination never occurs, and the pure transaction cost model where delayed trade never occurs.

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File URL: http://www.cramton.umd.edu/papers1990-1994/91ms-dynamic-bargaining.pdf
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Bibliographic Info

Paper provided by University of Maryland, Department of Economics - Peter Cramton in its series Papers of Peter Cramton with number 91ms.

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Length: 13 pages
Date of creation: 1991
Date of revision: 15 Jun 1998
Publication status: Published in Management Science, 37:10, October 1991, pages 1221-1233. Erratum published in Management Science, 39:2, February 1993, page 253.
Handle: RePEc:pcc:pccumd:91ms

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Postal: Economics Department, University of Maryland, College Park, MD 20742-7211
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Web page: http://www.cramton.umd.edu

Related research

Keywords: Bargaining; Negotiation; Delay; Signalling Games; Transaction Costs.;

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Cited by:
  1. Cramton, Peter & Kwerel, Evan & Williams, John, 1998. "Efficient Relocation of Spectrum Incumbents," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 41(2), pages 647-75, October.
  2. John List, 2004. "The nature and extent of discrimination in the marketplace: Evidence from the field," Natural Field Experiments, The Field Experiments Website 00299, The Field Experiments Website.
  3. Cramton, Peter C & Tracy, Joseph S, 1992. "Strikes and Holdouts in Wage Bargaining: Theory and Data," American Economic Review, American Economic Association, American Economic Association, vol. 82(1), pages 100-121, March.
  4. Ahmet Ozkardas & Agnieszka Rusinowska, 2013. "An application of wage bargaining to price negotiation with discount factors varying in time," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers), HAL halshs-00881151, HAL.
  5. Peter Cramton, 1992. "Strategic Delay in Bargaining with Two-Sided Uncertainty," Papers of Peter Cramton, University of Maryland, Department of Economics - Peter Cramton 92res, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  6. Simon Board & Marek Pycia, 2014. "Outside Options and the Failure of the Coase Conjecture," American Economic Review, American Economic Association, American Economic Association, vol. 104(2), pages 656-71, February.

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