Sequential Bargaining Mechanisms
The introductory discussion presented in this chapter considers the simplest type of sequential bargaining games in which the players' time preferences are described by known and fixed discount rates. I begin by characterizing the class of perfect bargaining mechanisms, which satisfy the desirable properties of incentive compatibility (i.e., each player reports his type truthfully), individual rationality (i.e., every potential player wishes to play the game), and sequential rationality (i.e., it is never common knowledge that the mechanism induced over time is dominated by an alternative mechanism). It is shown that ex post efficiency is unobtainable by any incentive-compatible and individually rational mechanism when the bargainers are uncertain about whether or not they should trade immediately. I conclude by finding those mechanisms that maximize the players' ex ante utility, and show that such mechanisms violate sequential rationality. Thus, the bargainers would be better off ex ante if they could commit to a mechanism before they knew their private information. In terms of their ex ante payoffs, if the seller's delay costs are higher than those of the buyer, then the bargainers are better off adopting a sequential bargaining game rather than a static mechanism; however, when the buyer's delay costs are higher, then a static mechanism is optimal.
|Date of creation:||1985|
|Date of revision:||09 Jun 1998|
|Publication status:||Published in Game-Theoretic Models of Bargaining, Alvin Roth, ed., Cambridge: Cambridge University Press, Chapter 8, 1985, pages 149-179.|
|Contact details of provider:|| Postal: Economics Department, University of Maryland, College Park, MD 20742-7211|
Phone: (202) 318-0520
Fax: (202) 318-0520
Web page: http://www.cramton.umd.edu
References listed on IDEAS
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- Drew Fudenberg & Jean Tirole, 1983. "Sequential Bargaining with Incomplete Information," Review of Economic Studies, Oxford University Press, vol. 50(2), pages 221-247.
- Ausubel, Lawrence M. & Cramton, Peter & Deneckere, Raymond J., 2002.
"Bargaining with incomplete information,"
Handbook of Game Theory with Economic Applications,
in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 3, chapter 50, pages 1897-1945
- Thomas A. Gresik & Mark A. Satterthwaite, 1983. "The Number of Traders Required to Make a Market Competitive: The Beginnings of a Theory," Discussion Papers 551, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Joel Sobel & Takahashi, 1983. "A Multi-stage Model of Bargaining," Levine's Working Paper Archive 255, David K. Levine.
- Holmstrom, Bengt & Myerson, Roger B, 1983.
"Efficient and Durable Decision Rules with Incomplete Information,"
Econometric Society, vol. 51(6), pages 1799-1819, November.
- Bengt Holmstrom & Roger B. Myerson, 1981. "Efficient and Durable Decision Rules with Incomplete Information," Discussion Papers 495, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Roger B. Myerson & Mark A. Satterthwaite, 1981.
"Efficient Mechanisms for Bilateral Trading,"
469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Fishburn, Peter C & Rubinstein, Ariel, 1982. "Time Preference," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(3), pages 677-694, October.
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