Bargaining with Uncertain Value Distributions
This paper studies a bargaining model in which the seller is uncertain about which distribution the buyer's values are drawn from. The distribution of the buyer's values is fixed across periods, while the buyerâ€™s values are drawn independently from the distribution each period. In the classical model of repeated bargaining where the buyerâ€™s value is drawn from a commonly known distribution and fixed across periods, the high-value buyer has a strong incentive to conceal his value, and the seller loses most of her bargaining power. An important question is whether adding a layer of uncertainty makes the high-value buyer more willing to accept high-price offers and improves the sellerâ€™s revenue. We find this to be the case as long as the sellerâ€™s ex ante beliefs are sufficiently optimistic.
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