Inefficient Pre-Bargaining Search

23 Pages Posted: 9 Jan 2011

See all articles by Birger Wernerfelt

Birger Wernerfelt

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: December 20, 2010

Abstract

We identify conditions under which a bargainer makes inefficiently large (small) investments in search for information about the opponent’s reservation price. The analysis starts with the observation that a player will invest too much (too little) if the opponent’s expected payoff is decreasing (increasing) in the probability that the player gets information. We develop comparative static results about over- and under-investment as a function of the efficiency and distributional properties of mechanisms, their dependence on search outcomes, and the nature of the trading problem. The results do not depend on any specific bargaining mechanism and are illustrated in several examples.

Keywords: Bargaining, Information Acquisition

JEL Classification: C78, D02, D83

Suggested Citation

Wernerfelt, Birger, Inefficient Pre-Bargaining Search (December 20, 2010). Available at SSRN: https://ssrn.com/abstract=1737108 or http://dx.doi.org/10.2139/ssrn.1737108

Birger Wernerfelt (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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