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Efficient Sequential Bargaining

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  • Lawrence M. Ausubel
  • Raymond J. Deneckere

Abstract

Suppose that a seller and a buyer have private valuations for a good, and that their respective utilities from a trading mechanism are given by us and ub. (These utilities are determined by the valuation for the good, by whether a trade occurs, and by the price which is paid.) Consider the problem of maximizing E[λus + (1 − λ)ub] for some weight λ in the unit interval. It is shown in this article that, if λ is sufficiently close to zero or one, then the maximum value of this objective function attainable by a static revelation mechanism can be arbitrarily closely approximated by equilibria of the sequential bargaining games in which only a single player makes offers. That is, the welfare bound implied by the revelation principle is virtually attainable in offer/counteroffer bargaining. The main condition needed for this result is a monotone-hazard-rate assumption about the distribution of types. A class of examples is presented in which the result holds for all λ (i.e. the entire ex ante Pareto frontier).

Suggested Citation

  • Lawrence M. Ausubel & Raymond J. Deneckere, 1993. "Efficient Sequential Bargaining," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(2), pages 435-461.
    • Handle: RePEc:oup:restud:v:60:y:1993:i:2:p:435-461.
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    File URL: http://hdl.handle.net/10.2307/2298066
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    Citations

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    Cited by:

    1. Ray Fisman & Roberta Gatti, 2006. "Bargaining for Bribes: The Role of Institutions," Chapters, in: Susan Rose-Ackerman (ed.), International Handbook on the Economics of Corruption, chapter 4, Edward Elgar Publishing.
    2. Jyotishka Ray & Syam Menon & Vijay Mookerjee, 2020. "Bargaining over Data: When Does Making the Buyer More Informed Help?," Information Systems Research, INFORMS, vol. 31(1), pages 1-15, March.
    3. Colin F. Camerer & Gideon Nave & Alec Smith, 2019. "Dynamic Unstructured Bargaining with Private Information: Theory, Experiment, and Outcome Prediction via Machine Learning," Management Science, INFORMS, vol. 65(4), pages 1867-1890, April.
    4. Rosenkranz, Stephanie & Schmitz, Patrick W., 2002. "Book Review of “Bargaining Theory with Applications” (Muthoo, 1999)," MPRA Paper 6973, University Library of Munich, Germany.
    5. Kaya, Ayça & Liu, Qingmin, 2015. "Transparency and price formation," Theoretical Economics, Econometric Society, vol. 10(2), May.
    6. Margrethe Aanesen, 2012. "Sequential bargaining, external effects of agreement, and public intervention," Journal of Economics, Springer, vol. 105(2), pages 145-160, March.
    7. Sanjeev Goyal, 1994. "On the possibility of efficient bilateral trade," Review of Economic Design, Springer;Society for Economic Design, vol. 1(1), pages 79-102, December.
    8. Tsoy, Anton, 2018. "Alternating-offer bargaining with the global games information structure," Theoretical Economics, Econometric Society, vol. 13(2), May.
    9. Armando Gomes, "undated". "Multiple Large Shareholders in Corporate Governance," Rodney L. White Center for Financial Research Working Papers 5-99, Wharton School Rodney L. White Center for Financial Research.
    10. Jarque, Xavier & Ponsati, Clara & Sakovics, Jozsef, 2003. "Mediation: incomplete information bargaining with filtered communication," Journal of Mathematical Economics, Elsevier, vol. 39(7), pages 803-830, September.

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