Bargaining with Arrival of New Traders
AbstractA seller meets a potential buyer who has private information about her valuation of the asset. They bargain dynamically over the transaction price. The bargaining is affected by the possibility of arrival of new traders. Possibility of arrivals determines endogenously outside options of the players. We characterize the unique stationary equilibrium of this game and in particular the dynamics of trade and prices in the limit as the time between offers goes to zero. As a general result we provide conditions for when the Coase conjecture does not hold. The main relevant factor is that the seller's expected payoff conditional on arrival of an event is sensitive to the buyer's value (for example, because if a second buyer arrives the seller runs an auction to allocate the asset). We show that the expected time to trade is a non-monotonic function of the arrival rate. Applying the model to arrival of a second trader (buyer or seller) with common value, we show that when buyer valuations fall, average transaction prices drop and the average time on the market gets longer.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 186.
Date of creation: 2007
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Other versions of this item:
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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