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Bargaining over a Divisible Good in the Market for Lemons

Author

Listed:
  • Dino Gerardi

    (Collegio Carlo Alberto/University of Turin)

  • Lucas Maestri

    (FGV/EPGE)

  • Ignacio Monzón

    (Collegio Carlo Alberto/University of Turin)

Abstract

We study bargaining with divisibility and interdependent values. A buyer and a seller trade a divisible good. The seller is privately informed about its quality, which can be high or low. Gains from trade are positive and decreasing. The buyer makes offers over time. Divisibility introduces a new channel of competition between the buyer’s present and future selves. The buyer’s temptation to split the purchases of the high-quality good is detrimental to him. As bargaining frictions vanish and the good becomes arbitrarily divisible, the high-quality good is traded smoothly over time and the buyer’s payoff shrinks to zero.

Suggested Citation

  • Dino Gerardi & Lucas Maestri & Ignacio Monzón, 2022. "Bargaining over a Divisible Good in the Market for Lemons," Working Papers 111, Red Nacional de Investigadores en Economía (RedNIE).
    • Handle: RePEc:aoz:wpaper:111
    as

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    File URL: https://rednie.eco.unc.edu.ar/files/DT/111.pdf
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    References listed on IDEAS

    as
    1. Diego Moreno & John Wooders, 2010. "Decentralized Trade Mitigates The Lemons Problem," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(2), pages 383-399, May.
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    More about this item

    Keywords

    : bargaining; gradual sale; Coase conjecture; divisible objects; interdependent valuations; market for lemons.;
    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
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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