Bargaining Under the Illusion of Transparency

39 Pages Posted: 17 Feb 2015

See all articles by Kristof Madarasz

Kristof Madarasz

London School of Economics & Political Science (LSE)

Date Written: February 2015


An uninformed seller offers an object to a privately informed buyer. The buyer projects information and exaggerates the probability that the seller is informed. Letting the buyer bargain and name her own price raises the seller's payoff above the full-commitment payoff. Under seller-offer bargaining, any positive degree of projection implies a full reversal of the Coasian result in stationary strategies. As delay between offers decreases, the seller raises his initial price and, in the limit, extracts the full surplus from trade. Dynamic bargaining without price-commitment is revenue-optimal. Existing experimental evidence is consistent with the comparative static predictions of the model.

Keywords: Bargaining, Coase Conjecture., Information Projection, Pricing

JEL Classification: C79, D03

Suggested Citation

Madarasz, Kristof, Bargaining Under the Illusion of Transparency (February 2015). CEPR Discussion Paper No. DP10327, Available at SSRN:

Kristof Madarasz (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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