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Bargaining with Binary Private Information

Author

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  • Francesc Dilmé

    (University of Bonn)

Abstract

This paper studies bargaining between a seller and a buyer with binary private valuation. Because the setting is more tractable than the case of general valuation distributions (studied in Gul et al., 1986), we are able to explicitly construct the full set of equilibria via induction. This lets us provide a simple proof of the Coase conjecture and obtain new results: The seller extracts all surplus as she becomes more patient, and the equilibrium outcome converges to the perfect-information outcome as private information vanishes. We also fully characterize the case where there is a deadline: We establish that if the probability that the buyer’s valuation is high is large enough, then the seller charges a high price at all times, there are trade bursts at the outset and the deadline, and trade occurs at a constant rate in between.

Suggested Citation

  • Francesc Dilmé, 2024. "Bargaining with Binary Private Information," ECONtribute Discussion Papers Series 284, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkdps:284
    as

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    File URL: https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_284_2024.pdf
    File Function: First version, 2024
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    References listed on IDEAS

    as
    1. Francesco Nava & Pasquale Schiraldi, 2019. "Differentiated Durable Goods Monopoly: A Robust Coase Conjecture," American Economic Review, American Economic Association, vol. 109(5), pages 1930-1968, May.
    2. Ayça Kaya & Kyungmin Kim, 2018. "Trading Dynamics with Private Buyer Signals in the Market for Lemons," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(4), pages 2318-2352.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Bargaining; private information; one-sided offers;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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