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Strategic Inaccuracy in Bargaining

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  • Hidir, Sinem

Abstract

This paper studies a buyer-seller game with pre-trade communication of private horizontal taste from the buyer followed by a take it or leave it offer by the seller. The amount of information transmitted improves the gains from trade, but also determines how this surplus will be shared between the two. Lack of commitment to a price creates a hold-up problem and a trade off between efficiency and rent extraction. In this setting, coarse information arises due to the concerns on the terms of the transaction. As the preferences get less important, information transmission becomes less precise. It is shown that in the buyer optimal equilibria of the static and dynamic games, the messages sent are just informative enough to ensure trade. In the dynamic game, the buyer is always better off sending infor- mative messages only at the first period, implying no gains from gradual revelation of information.

Suggested Citation

  • Hidir, Sinem, 2014. "Strategic Inaccuracy in Bargaining," TSE Working Papers 14-541, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:28788
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    References listed on IDEAS

    as
    1. Golosov, Mikhail & Skreta, Vasiliki & Tsyvinski, Aleh & Wilson, Andrea, 2014. "Dynamic strategic information transmission," Journal of Economic Theory, Elsevier, vol. 151(C), pages 304-341.
    2. Johannes Hörner & Andrzej Skrzypacz, 2016. "Selling Information," Journal of Political Economy, University of Chicago Press, vol. 124(6), pages 1515-1562.
    3. Chakraborty, Archishman & Harbaugh, Rick, 2003. "Cheap talk comparisons in multi-issue bargaining," Economics Letters, Elsevier, vol. 78(3), pages 357-363, March.
    4. Krishna, Vijay & Morgan, John, 2004. "The art of conversation: eliciting information from experts through multi-stage communication," Journal of Economic Theory, Elsevier, vol. 117(2), pages 147-179, August.
    5. Drew Fudenberg & David K. Levine & Jean Tirole, 1985. "Infinite-Horizon Models of Bargaining with One-Sided Incomplete Information," Levine's Working Paper Archive 1098, David K. Levine.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    information; cheap-talk; bargaining; buyer-seller relation;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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