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Bargaining with Arrival of New Traders

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  • Andrzej Skrzypacz

    (Stanford)

  • William Fuchs

    (University of Chicago)

Abstract

A 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 Info

Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 186.

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Date of creation: 2007
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Handle: RePEc:red:sed007:186

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References

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  1. D. Abreu & F. Gul, 1998. "Bargaining and Reputation," Princeton Economic Theory Papers 00s9, Economics Department, Princeton University.
  2. Jehiel, Philippe & Moldovanu, Benny, 1995. "Negative Externalities May Cause Delay in Negotiation," Econometrica, Econometric Society, vol. 63(6), pages 1321-35, November.
  3. Daniel R. Vincent, 1988. "Bargaining with Common Values," Discussion Papers 775, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
  5. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
  6. Cramton, Peter C, 1984. "Bargaining with Incomplete Information: An Infinite-Horizon Model with Two-Sided Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 51(4), pages 579-93, October.
  7. Evans, Robert, 1989. "Sequential Bargaining with Correlated Values," Review of Economic Studies, Wiley Blackwell, vol. 56(4), pages 499-510, October.
  8. Cho, In-Koo, 1990. "Uncertainty and Delay in Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 57(4), pages 575-95, October.
  9. Chatterjee, Kalyan & Samuelson, Larry, 1987. "Bargaining with Two-Sided Incomplete Information: An Infinite Horizon Model with Alternating Offers," Review of Economic Studies, Wiley Blackwell, vol. 54(2), pages 175-92, April.
  10. Arial Rubinstein & Asher Wolinsky, 1985. "Equilibrium in a Market with Sequential Bargaining," Levine's Working Paper Archive 623, David K. Levine.
  11. Peter M. DeMarzo & Branko Uro, 2006. "Ownership Dynamics and Asset Pricing with a Large Shareholder," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 774-815, August.
  12. Muhamet Yildiz, 2004. "Waiting to Persuade," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 223-248, February.
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Cited by:
  1. Abreu, Dilip & Pearce, David G. & Stacchetti, Ennio, 0. "One-sided uncertainty and delay in reputational bargaining," Theoretical Economics, Econometric Society.
  2. Said, Maher, 2008. "Information Revelation and Random Entry in Sequential Ascending Auctions," MPRA Paper 7160, University Library of Munich, Germany.
  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.
  4. Qingmin Liu & Konrad Mierendorff & Xianwen Shi, 2013. "Auctions with Limited Commitment," Working Papers tecipa-504, University of Toronto, Department of Economics.
  5. Roman Inderst, 2008. "Dynamic Bilateral Bargaining under Private Information with a Sequence of Potential Buyers," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 220-236, January.
  6. Said, Maher, 2008. "Dynamic Markets with Randomly Arriving Agents," MPRA Paper 9868, University Library of Munich, Germany.
  7. Mikhail Drugov, 2010. "Information and delay in an agency model," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 598-615.
  8. Zhiguo He & Gregor Matvos, 2012. "Debt and Creative Destruction: Why Could Subsidizing Corporate Debt be Optimal?," NBER Working Papers 17920, National Bureau of Economic Research, Inc.
  9. Fuchs, William & Skrzypacz, Andrzej, 2013. "Bridging the gap: Bargaining with interdependent values," Journal of Economic Theory, Elsevier, vol. 148(3), pages 1226-1236.

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