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Optimal Stalling When Bargaining

35 Pages Posted: 9 Sep 2008 Last revised: 18 Mar 2014

John E. Thanassoulis

University of Warwick - Warwick Business School; Oxford-Man Institute, University of Oxford; Nuffield College, University of Oxford

Date Written: May 1, 2009

Abstract

This paper analyzes an alternating offer model of bargaining over the sale of an asset in a market, such as that for housing, in which another agent may come and compete for the right to strike a deal. The analysis allows the buyer and seller to have possibly differing views as to how likely such competition is. Hence the buyer and seller disagree about their respective bargaining powers. These views adjust to market realizations as the parties learn. It is shown that there exists a unique Subgame Perfect Equilibrium which can be explicitly constructed: hence, conditional on market conditions, equilibrium prices and optimal stall lengths (that is delay) can be found. Bargaining delay can only occur if there is optimism (not pessimism) and only if the parties are open to learning as time elapses. This delay can occur even for very small levels of optimism and the delay can be for economically significant periods.

Keywords: Optimism, bargaining delay, asset sales, house sales, bargaining power

JEL Classification: D83, C78

Suggested Citation

Thanassoulis, John E., Optimal Stalling When Bargaining (May 1, 2009). Journal of Economic Dynamics and Control, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1264913

John E. Thanassoulis (Contact Author)

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

HOME PAGE: http://https://sites.google.com/site/thanassoulis/

Oxford-Man Institute, University of Oxford ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

Nuffield College, University of Oxford ( email )

New Road
Oxford, OX1 1NF
United Kingdom

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