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Bargaining and News

34 Pages Posted: 20 Apr 2016 Last revised: 13 May 2017

Brendan Daley

Duke University - Fuqua School of Business

Brett S. Green

University of California, Berkeley - Haas School of Business

Date Written: May 12, 2017

Abstract

We study a bargaining model in which a buyer makes frequent offers to a privately informed seller. In addition, the buyer gradually learns 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 takes 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 improve her information and continuation payoff if rejected. We investigate the effects of market power by comparing our results to a setting with competitive buyers. Surprisingly, 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 (May 12, 2017). Available at SSRN: https://ssrn.com/abstract=2767147

Brendan Daley

Duke University - Fuqua School of Business ( email )

100 Fuqua Drive
Durham, NC 27708-0204
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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