Alternating-Offer Bargaining with the Global Games Information Structure
80 Pages Posted: 3 Nov 2014 Last revised: 25 Jul 2017
Date Written: July 23, 2017
In this study, I examine the alternating-offer bilateral bargaining model with private correlated values. The correlation of values is modeled via the global games information structure. I focus on the double limits of perfect Bayesian equilibria as offers become frequent and the correlation approaches perfect. I characterize the Pareto frontier of the double limits and show that it is efficient, but the surplus split generally differs from the Nash Bargaining split. I then construct a double limit that approximates the Nash Bargaining split in the ex-post surplus, but with a delay. Further, I prove the Folk theorem when the range of the buyer's values coincides with the range of the seller's costs: any feasible and individually rational ex-ante payoff profile can be approximated by a double limit.
Keywords: bargaining delay, alternating offers, incomplete information, private correlated values, Coase conjecture, global games
JEL Classification: C74, C78, D82
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