Bargaining and News

51 Pages Posted: 20 Apr 2016 Last revised: 5 Jan 2018

Brendan Daley

University of Colorado, Boulder

Brett S. Green

University of California, Berkeley - Haas School of Business

Date Written: January 4, 2018

Abstract

We study a bargaining model in which a buyer makes frequent offers to a privately informed seller, while gradually learning about the seller’s type from “news.” We show that the buyer’s ability to leverage this information to extract more surplus from the seller is remarkably limited. In fact, the buyer gains nothing from the ability to negotiate a better price despite the fact that a negotiation must take place in equilibrium. During the negotiation, the buyer engages in a form of costly “experimentation” by making offers that are sure to earn her negative payoffs if accepted, but speed up learning and improve her continuation payoff if rejected. We investigate the effects of market power by comparing our results to a setting with competitive buyers. Both efficiency and the seller’s payoff can decrease by introducing competition among buyers.

Keywords: Bargaining, Private Information, Learning, Dynamics

JEL Classification: C78, C73, D83

Suggested Citation

Daley, Brendan and Green, Brett S., Bargaining and News (January 4, 2018). Available at SSRN: https://ssrn.com/abstract=2767147 or http://dx.doi.org/10.2139/ssrn.2767147

Brendan Daley

University of Colorado, Boulder ( email )

Campus Box 419
Boulder, CO
United States

Brett S. Green (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

2220 Piedmont Avenue
Berkeley, CA ca 94720
United States
5105759980 (Phone)

HOME PAGE: http://faculty.haas.berkeley.edu/bgreen/

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