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Bargaining with Arrival of New Traders

Author

Listed:
  • Andrzej Skrzypacz

    (Stanford)

  • William Fuchs

    (University of Chicago)

Abstract

A seller meets a potential buyer who has private information about her valuation of the asset. They bargain dynamically over the transaction price. The bargaining is affected by the possibility of arrival of new traders. Possibility of arrivals determines endogenously outside options of the players. We characterize the unique stationary equilibrium of this game and in particular the dynamics of trade and prices in the limit as the time between offers goes to zero. As a general result we provide conditions for when the Coase conjecture does not hold. The main relevant factor is that the seller's expected payoff conditional on arrival of an event is sensitive to the buyer's value (for example, because if a second buyer arrives the seller runs an auction to allocate the asset). We show that the expected time to trade is a non-monotonic function of the arrival rate. Applying the model to arrival of a second trader (buyer or seller) with common value, we show that when buyer valuations fall, average transaction prices drop and the average time on the market gets longer.

Suggested Citation

  • Andrzej Skrzypacz & William Fuchs, 2007. "Bargaining with Arrival of New Traders," 2007 Meeting Papers 186, Society for Economic Dynamics.
    • Handle: RePEc:red:sed007:186
    as

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    References listed on IDEAS

    as
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    More about this item

    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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