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Bargaining, search, and outside options

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  • Gantner, Anita

Abstract

This paper studies a two-sided incomplete information bargaining model between a seller and a buyer. The buyer has an outside option, which is modeled as a sequential search process during which he can choose to return to bargaining at any time. Two cases are considered: In Regime I, both agents have symmetric information about the search parameters. We find that, in contrast to bargaining with complete information, the option to return to bargaining is not redundant in equilibrium. However, the no-delay result still holds. In Regime II, where agents have asymmetric information about the outside option, delay is possible. The solution characterizes the parameters for renegotiation and those for search with no return to the bargaining table.

Suggested Citation

  • Gantner, Anita, 2008. "Bargaining, search, and outside options," Games and Economic Behavior, Elsevier, vol. 62(2), pages 417-435, March.
  • Handle: RePEc:eee:gamebe:v:62:y:2008:i:2:p:417-435
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Chatterjee, Kalyan & Lee, Ching Chyi, 1998. "Bargaining and Search with Incomplete Information about Outside Options," Games and Economic Behavior, Elsevier, vol. 22(2), pages 203-237, February.
    3. Arnold, Michael A & Lippman, Steven A, 1998. "Posted Prices versus Bargaining in Markets with Asymmetric Information," Economic Inquiry, Western Economic Association International, vol. 36(3), pages 450-457, July.
    4. Janusz A. Ordover & Ariel Rubinstein, 1986. "A Sequential Concession Game with Asymmetric Information," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 879-888.
    5. Peter C. Cramton, 1992. "Strategic Delay in Bargaining with Two-Sided Uncertainty," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 205-225.
    6. Lippman, Steven A & McCall, John J, 1976. "The Economics of Job Search: A Survey," Economic Inquiry, Western Economic Association International, vol. 14(3), pages 347-368, September.
    7. Helmut Bester, 1988. "Bargaining, Search Costs and Equilibrium Price Distributions," Review of Economic Studies, Oxford University Press, vol. 55(2), pages 201-214.
    8. Lippman, Steven A & McCall, John J, 1976. "The Economics of Job Search: A Survey: Part I," Economic Inquiry, Western Economic Association International, vol. 14(2), pages 155-189, June.
    9. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-1150, September.
    10. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 52(6), pages 1351-1364, November.
    11. Dale T. Mortensen, 1978. "Specific Capital, Bargaining, and Labor Turnover," Discussion Papers 320, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    12. Joel Sobel & Ichiro Takahashi, 1983. "A Multistage Model of Bargaining," Review of Economic Studies, Oxford University Press, vol. 50(3), pages 411-426.
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    Cited by:

    1. Kalyan Chatterjee & Kaustav Das, 2013. "Decentralised Bilateral Trading in a Market with Incomplete Information," Discussion Papers 1313, Exeter University, Department of Economics.
    2. repec:eee:gamebe:v:106:y:2017:i:c:p:89-113 is not listed on IDEAS
    3. Feri, Francesco & Gantner, Anita, 2011. "Bargaining or searching for a better price? - An experimental study," Games and Economic Behavior, Elsevier, vol. 72(2), pages 376-399, June.

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