Bilateral bargaining, unverifiable quality, and options to return
The paper investigates an alternating-offers bargaining game between a buyer and a seller who face several trading opportunities. These items (goods or services) differ in their non-verifiable quality characteristics which gives rise to a moral hazard problem on the seller's part. For the special case of two goods, we completely characterize the set of subgame-perfect equilibria. We find that the seller always extends an option to return the good, while the buyer may suffer from this warranty. Also, qualitatively different types of equilibrium outcomes occur depending on the parameters of the model: (a) the seller may obtain a larger share of the surplus although the parties ex ante have symmetric bargaining positions, (b) the subgame-perfect equilibrium may entail inefficient trade, and (c) multiple equilibria may exist including equilibria with delay in negotiations. Finally, we analyze a situation where bargaining proceeds after the good was returned which is shown to reestablish uniqueness and efficiency of equilibrium. Copyright Springer-Verlag Berlin/Heidelberg 2004
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 23 (2004)
Issue (Month): 2 (January)
|Contact details of provider:|| Web page: http://www.springer.com|
|Order Information:||Web: http://www.springer.com/economics/economic+theory/journal/199/PS2|