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Bargaining with Binary Private Information

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  • Francesc Dilmé

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," CRC TR 224 Discussion Paper Series crctr224_2024_515, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2024_515
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    References listed on IDEAS

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    1. Dilip Abreu & Faruk Gul, 2000. "Bargaining and Reputation," Econometrica, Econometric Society, vol. 68(1), pages 85-118, January.
    2. Francesc Dilmé & Fei Li, 2019. "Revenue Management without Commitment: Dynamic Pricing and Periodic Flash Sales," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(5), pages 1999-2034.
    3. Michael Landsberger & Isaac Meilijson, 1985. "Intertemporal Price Discrimination and Sales Strategy under Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 424-430, Autumn.
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    Keywords

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    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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