Dynamic Bargaining with Transaction Costs
A buyer and seller alternate making offers until an offer is accepted or someone terminates negotiations. The seller's valuation is common knowledge, but the buyer's valuation is known only by the buyer. Impatience to reach an agreement comes from two sources: the traders discount future payoffs and there are transaction costs of bargaining. Equilibrium behavior involves either immediate trade, delayed trade, or immediate termination, depending on the size of the gains from trade and the relative bargaining costs. This contrasts with the pure discounting model where termination never occurs, and the pure transaction cost model where delayed trade never occurs.
|Date of creation:||1991|
|Date of revision:||15 Jun 1998|
|Publication status:||Published in Management Science, 37:10, October 1991, pages 1221-1233. Erratum published in Management Science, 39:2, February 1993, page 253.|
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