Alternating bid bargaining with a smallest money unit

Eric Van Damme*, Reinhard Selten, Eyal Winter

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

52 Scopus citations

Abstract

In a seminal paper, Ariel Rubinstein has shown that impatience implies determinateness of the two-person bargaining problem. In this note we show that this result depends also on the assumption that the set of alternatives is a continuum. If the pie can be divided only in finitely many different ways (for example, because the pie is an amount of money and there is a smallest money unit), any partition can be obtained as the result of a subgame perfect equilibrium if the time interval between successive offers is sufficiently small. We also show that, for a fixed discount rate, all subgame perfect equilibrium payoffs of the discrete game converge to the solution obtained by Rubinstein if the smallest money unit tends to zero.

Original languageAmerican English
Pages (from-to)188-201
Number of pages14
JournalGames and Economic Behavior
Volume2
Issue number2
DOIs
StatePublished - Jun 1990

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