Markets with bilateral bargaining and incomplete information
Chatterje, Kalyan and Dutta, Bhaskar (2006) Markets with bilateral bargaining and incomplete information. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.762).
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We study the relationship between bargaining and competition with incomplete information. We consider a model with two uninformed and identical buyers and two sellers. One of the sellers has a privately-known reservation price, which can
either be Low or High. The other seller’s reservation price is commonly known to be in between the Low and High values of the privately-informed seller. Buyers move in sequence, and make offers with the second buyer observing the offer
made by the first buyer. The sellers respond simultaneously. We show that there are two types of (perfect Bayes) equilibrium. In one equilibrium, the buyer who moves second does better. In the second equilibrium, buyers’ expected payoffs are equalised, and the price received by the seller with the known reservation value is determined entirely by the equuilibrium of the two-player game between a single buyer and an informed seller. We also discuss extensions of the model to multiple buyers and sellers, and to the case where both sellers are privately informed.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HB Economic Theory|
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Equilibrium (Economics), Bargaining, Competition, Game theory|
|Series Name:||Warwick economic research papers|
|Publisher:||University of Warwick, Department of Economics|
|Place of Publication:||Coventry|
|Official Date:||10 September 2006|
|Number of Pages:||32|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Funder:||Economic and Social Research Council (Great Britain) (ESRC)|
|Grant number:||RES-000-22-0341 (ESRC)|
Ausubel, L.M., Cramton, P. and Deneckere, R. (2002). Bargaining with incomplete information, in Aumann, R.J. and Hart, S., eds., Handbook of Game Theory, Vol. 3, Amsterdam: Elsevier Science B.V., Chapter 50, pp.1897-1945.
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