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Coasian Bargaining with An Arriving Outside Option

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  • Ilwoo Hwang

    ()
    (Department of Economics, University of Pennsylvania)

  • Fei Li

    ()
    (Department of Economics, University of North Carolina Chapel Hill)

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Abstract

We consider Coasian bargaining problems where the buyer has an outside option arriving at a stochastic time. We study both observable outside option models and unobservable outside option models. In both models, we show that a Coasian equilibrium exists if (1) the arrival of the outside option is public, or (2) the arrival of the outside option is private but the arrival probability is small enough. (1) the seller makes multiple rounds of offers, and (2) the Coase conjecture holds for an arbitrarily large arrival rate of the outside option. The result also applies to the time-varying outside option model. This exercise helps us to understand the sharp difference between Board and Pycia (2013), where the buyer's outside option is always available, and the standard Coasian bargaining literature, where the buyer has no outside option.

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Bibliographic Info

Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 13-047.

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Length: 15 pages
Date of creation: 25 Aug 2013
Date of revision:
Handle: RePEc:pen:papers:13-047

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Keywords: Bargaining; Arriving Outside Option; Dynamic Games; Coase Conjecture;

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  1. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
  2. Wolinsky, Asher, 1986. "True Monopolistic Competition as a Result of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 493-511, August.
  3. Ilwoo Hwang, 2013. "A Theory of Bargaining Deadlock," PIER Working Paper Archive 13-050, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
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Cited by:
  1. Ilwoo Hwang, 2013. "A Theory of Bargaining Deadlock," PIER Working Paper Archive 13-050, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.

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