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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
    1. Peter C. Cramton, 1984. "Bargaining with Incomplete Information: An Infinite-Horizon Model with Two-Sided Uncertainty," Review of Economic Studies, Oxford University Press, vol. 51(4), pages 579-593.
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    11. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
    12. Andrzej Skrzypacz & William Fuchs, 2009. "Bargaining with Deadlines," 2009 Meeting Papers 159, Society for Economic Dynamics.
    13. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, pages 1133-1150.
    14. Yossi Feinberg & Andrzej Skrzypacz, 2005. "Uncertainty about Uncertainty and Delay in Bargaining," Econometrica, Econometric Society, vol. 73(1), pages 69-91, January.
    15. Muhamet Yildiz, 2004. "Waiting to Persuade," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 223-248.
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    Citations

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    Cited by:

    1. Ilwoo Hwang, 2013. "A Theory of Bargaining Deadlock," PIER Working Paper Archive 13-050, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    2. Fuchs, William & Skrzypacz, Andrzej, 2013. "Bridging the gap: Bargaining with interdependent values," Journal of Economic Theory, Elsevier, vol. 148(3), pages 1226-1236.
    3. Carrasco, Vinicius & Orenstein, Paulo & Salgado, Pablo, 2016. "When (and how) to favor incumbents in optimal dynamic procurement auctions," Journal of Mathematical Economics, Elsevier, vol. 62(C), pages 52-61.
    4. Tang, Dragon Yongjun & Yan, Hong, 2017. "Understanding transactions prices in the credit default swaps market," Journal of Financial Markets, Elsevier, vol. 32(C), pages 1-27.
    5. Dilmé, Francesc, 2017. "Noisy signaling in discrete time," Journal of Mathematical Economics, Elsevier, vol. 68(C), pages 13-25.
    6. Hwang, Ilwoo & Li, Fei, 2017. "Transparency of outside options in bargaining," Journal of Economic Theory, Elsevier, vol. 167(C), pages 116-147.
    7. Zhiguo He & Gregor Matvos, 2012. "Debt and Creative Destruction: Why Could Subsidizing Corporate Debt be Optimal?," NBER Working Papers 17920, National Bureau of Economic Research, Inc.
    8. Mikhail Drugov, 2010. "Information and delay in an agency model," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 598-615.
    9. Artyom Shneyerov, 2014. "An optimal slow Dutch auction," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 577-602.
    10. Roman Inderst, 2008. "Dynamic Bilateral Bargaining under Private Information with a Sequence of Potential Buyers," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 220-236, January.
    11. Qingmin Liu & Konrad Mierendorff & Xianwen Shi, 2013. "Auctions with Limited Commitment," Working Papers tecipa-504, University of Toronto, Department of Economics.
    12. Said, Maher, 2011. "Sequential auctions with randomly arriving buyers," Games and Economic Behavior, Elsevier, vol. 73(1), pages 236-243, September.
    13. Abreu, Dilip & Pearce, David G. & Stacchetti, Ennio, 2015. "One-sided uncertainty and delay in reputational bargaining," Theoretical Economics, Econometric Society.
    14. Said, Maher, 2008. "Information Revelation and Random Entry in Sequential Ascending Auctions," MPRA Paper 7160, University Library of Munich, Germany.

    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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