Sequential bargaining under asymmetric information

Sanford J. Grossman; Motty Perry

doi:10.1016/0022-0531(86)90023-2

Sequential bargaining under asymmetric information

Sanford J. Grossman^*
, Motty Perry

^*Corresponding author for this work

Department of Economics

Research output: Contribution to journal › Article › peer-review

115 Scopus citations

Abstract

We analyze an infinite stage, alternating offer bargaining game in which the buyer knows the gains from trade but the seller does not. Under weak assumptions the game has a unique candidate perfect sequential equilibrium, and it can be solved by backward induction. Equilibrium involves the seller making an offer which is accepted by buyers with high gains from trade, while buyers with medium gains reject and make a counteroffer which the seller accepts. Buyers with low gains make an unacceptable offer, and then the whole process repeats itself. Numerical simulations demonstrate the effects of uncertainty on the length of bargaining.

Original language	English
Pages (from-to)	120-154
Number of pages	35
Journal	Journal of Economic Theory
Volume	39
Issue number	1
DOIs	https://doi.org/10.1016/0022-0531(86)90023-2
State	Published - Jun 1986

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Sequential bargaining under asymmetric information

Abstract

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