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Bargaining with Interdependent Values

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A seller and a buyer bargain over the terms of trade for an object. The seller receives a perfect signal determining the value of the object to both players, while the buyer remains uninformed. We analyze the infinite horizon bargaining game in which the buyer makes all the offers. When the static incentive constraints permit first-best efficiency, then under some regularity conditions the outcome of the sequential bargaining game becomes arbitrarily efficient as bargaining frictions vanish. When the static incentive constraints preclude first-best efficiency, the limiting bargaining outcome is not second-best efficient, and may even perform worse than the outcome from the one-period bargaining game. With frequent buyer offers, the outcome is then characterized by recurring bursts of high probability of agreement, followed by long periods of delay in which the probability of agreement is negligible.

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  • Raymond Deneckere & Meng-Yu Liang, 2001. "Bargaining with Interdependent Values," University of Western Ontario, Departmental Research Report Series 20017, University of Western Ontario, Department of Economics.
    • Handle: RePEc:uwo:uwowop:20017
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    File URL: https://ir.lib.uwo.ca/cgi/viewcontent.cgi?article=1378&context=economicsresrpt
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    Cited by:

    1. Chatterjee, Kalyan & Dutta, Bhaskar, 2006. "Markets with Bilateral Bargaining and Incomplete Information," Economic Research Papers 269732, University of Warwick - Department of Economics.
    2. Feinberg, Yossi & Skyzypacz, Andrzej, 2002. "Uncertainty about Uncertainty and Delay in Bargaining," Research Papers 1765, Stanford University, Graduate School of Business.

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