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Bargaining While Learning About New Arrivals, Second Version

Author

Listed:
  • Chong Huang

    (Paul Merage School of Business, University of California, Irvine)

  • Fei Li

    (Department of Economics, University of North Carolina at Chapel Hill)

Abstract

We study dynamic bargaining with uncertainty over the buyer's valuation and the seller's outside option. A long-lived seller makes offers to a long-lived buyer whose value is private information. There may exist a short-lived buyer whose value is higher than that of the long-lived buyer. The arrival of the short-lived buyer, if she exists, is determined by a Poisson process. We characterize the unique equilibrium. The equilibrium displays interesting price fluctuations: in some periods, the seller charges a high price unacceptable to the long-lived buyer, in the hope that the short-lived buyer will appear in that period; in the other periods, he offers a price attractive to some values of the long-lived buyer. The price dynamics result from the interaction between two learning processes: exogenous learning about the existence of short-lived buyers, and endogenous learning about the long-lived buyer's value.

Suggested Citation

  • Chong Huang & Fei Li, 2011. "Bargaining While Learning About New Arrivals, Second Version," PIER Working Paper Archive 13-033, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 21 May 2013.
    • Handle: RePEc:pen:papers:13-033
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    References listed on IDEAS

    as
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    More about this item

    Keywords

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    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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