Sequential Bargaining Under Asymmetric Information

52 Pages Posted: 27 Jun 2007 Last revised: 23 May 2012

See all articles by Sanford J. Grossman

Sanford J. Grossman

University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Motty Perry

Hebrew University of Jerusalem - Center for the Study of Rationality; Pennsylvania State University, College of the Liberal Arts - Department of Economic

Date Written: May 1986

Abstract

We analyze an infinite stage, alternating offer bargaining game in which the buyer knows the gains from trade but the seller does not. Under weak assumptions the game has a unique candidate Perfect Sequential Equilibrium, and it can be solved by backward induction. Equilibrium involves the seller making an offer which is accepted by buyers with high gains from trade, while buyers with medium gains reject and make a counteroffer which the seller accepts. Buyers with low gains make an unacceptable offer, and then the whole process repeats itself, Numerical simulations demonstrate the effects of uncertainty on the length of bargaining.

Suggested Citation

Grossman, Sanford J. and Perry, Motty, Sequential Bargaining Under Asymmetric Information (May 1986). NBER Working Paper No. t0056. Available at SSRN: https://ssrn.com/abstract=994626

Sanford J. Grossman (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Motty Perry

Hebrew University of Jerusalem - Center for the Study of Rationality ( email )

Feldman Building
Givat-Ram
Jerusalem, 91904
Israel

Pennsylvania State University, College of the Liberal Arts - Department of Economic ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
United States

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