Journal
GAMES AND ECONOMIC BEHAVIOR
Volume 62, Issue 2, Pages 417-435Publisher
ACADEMIC PRESS INC ELSEVIER SCIENCE
DOI: 10.1016/j.geb.2007.05.006
Keywords
bargaining; two-sided incomplete information; outside option; search
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This paper studies a two-sided incomplete information bargaining model between a seller and a buyer. The buyer has an outside option, which is modeled as a sequential search process during which he can choose to return to bargaining at any time. Two cases are considered: In Regime I, both agents have symmetric information about the search parameters. We find that, in contrast to bargaining with complete information, the option to return to bargaining is not redundant in equilibrium. However, the no-delay result still holds. In Regime II, where agents have asymmetric information about the outside option, delay is possible. The solution characterizes the parameters for renegotiation and those for search with no return to the bargaining table. (c) 2007 Elsevier Inc. All rights reserved.
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