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Bargaining with Interdependent Values

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  • Raymond Deneckere
  • Meng-Yu Liang

Abstract

A seller and a buyer bargain over the terms of trade for an object. The seller receives a perfect signal that determines the value of the object to both players, whereas 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. Copyright The Econometric Society 2006.

Suggested Citation

  • Raymond Deneckere & Meng-Yu Liang, 2006. "Bargaining with Interdependent Values," Econometrica, Econometric Society, vol. 74(5), pages 1309-1364, September.
  • Handle: RePEc:ecm:emetrp:v:74:y:2006:i:5:p:1309-1364
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    File URL: http://hdl.handle.net/10.1111/j.1468-0262.2006.00706.x
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    Citations

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    Cited by:

    1. Schweinzer, Paul, 2006. "Sequential bargaining with pure common values," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 137, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    2. Kawai, Keiichi, 2014. "Dynamic market for lemons with endogenous quality choice by the seller," Games and Economic Behavior, Elsevier, vol. 84(C), pages 152-162.
    3. Bond, Philip & Eraslan, Hülya, 2010. "Information-based trade," Journal of Economic Theory, Elsevier, vol. 145(5), pages 1675-1703, September.
    4. Fuchs, William & Skrzypacz, Andrzej, 2013. "Bridging the gap: Bargaining with interdependent values," Journal of Economic Theory, Elsevier, vol. 148(3), pages 1226-1236.
    5. Philip Bond & Hülya Eraslan, 2010. "Strategic Voting over Strategic Proposals," Review of Economic Studies, Oxford University Press, vol. 77(2), pages 459-490.
    6. Gerardi, Dino & Hörner, Johannes & Maestri, Lucas, 2014. "The role of commitment in bilateral trade," Journal of Economic Theory, Elsevier, vol. 154(C), pages 578-603.
    7. Vladimirov, Vladimir, 2015. "Financing bidders in takeover contests," Journal of Financial Economics, Elsevier, vol. 117(3), pages 534-557.
    8. Camargo, Braz & Lester, Benjamin, 2014. "Trading dynamics in decentralized markets with adverse selection," Journal of Economic Theory, Elsevier, vol. 153(C), pages 534-568.
    9. Richard R. W. Brooks & Claudia M. Landeo & Kathryn E. Spier, 2010. "Trigger happy or gun shy? Dissolving common-value partnerships with Texas shootouts," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 649-673.
    10. Kim, Kyungmin, 2015. "Public offers in the market for lemons with large discounting," Economics Letters, Elsevier, vol. 130(C), pages 63-65.
    11. repec:the:publsh:2543 is not listed on IDEAS
    12. Hwang, Ilwoo & Li, Fei, 2017. "Transparency of outside options in bargaining," Journal of Economic Theory, Elsevier, vol. 167(C), pages 116-147.
    13. Bilancini, Ennio & Boncinelli, Leonardo, 2016. "Dynamic adverse selection and the supply size," European Economic Review, Elsevier, vol. 83(C), pages 233-242.
    14. repec:eee:jetheo:v:169:y:2017:i:c:p:365-399 is not listed on IDEAS
    15. Schweinzer, Paul, 2010. "Sequential bargaining with common values," Journal of Mathematical Economics, Elsevier, vol. 46(1), pages 109-121, January.
    16. Philip Bond & Hülya Eraslan, 2004. "Strategic Voting over Strategic Proposals, Second Version," PIER Working Paper Archive 07-014, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 02 Jan 2007.
    17. Dang, Tri Vi, 2008. "Bargaining with endogenous information," Journal of Economic Theory, Elsevier, vol. 140(1), pages 339-354, May.
    18. repec:spr:joecth:v:65:y:2018:i:2:d:10.1007_s00199-016-1004-1 is not listed on IDEAS
    19. Raymond Deneckere & Meng-Yu Liang, 2008. "Imperfect durability and the Coase conjecture," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 1-19.
    20. Mosk, Thomas, 2018. "Bargaining with a bank," SAFE Working Paper Series 211, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    21. repec:eee:gamebe:v:109:y:2018:i:c:p:501-522 is not listed on IDEAS
    22. repec:eee:gamebe:v:106:y:2017:i:c:p:89-113 is not listed on IDEAS
    23. Kaya, Ayça & Liu, Qingmin, 2015. "Transparency and price formation," Theoretical Economics, Econometric Society, vol. 10(2), May.
    24. Abreu, Dilip & Pearce, David G. & Stacchetti, Ennio, 2015. "One-sided uncertainty and delay in reputational bargaining," Theoretical Economics, Econometric Society, vol. 10(3), September.
    25. Vincent Maurin, 2016. "Liquidity Fluctuations in Over the Counter Markets," 2016 Meeting Papers 218, Society for Economic Dynamics.

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