Faculty of Economics and Business Administration Publications Database

Bargaining with a Possibly Committed Seller

Volume: 8
Number: 4
Pages: 927 - 944
Month: October
ISSN-Print: 1094-2025
Link External Source: Online Version
Year: 2005
Keywords: Bargaining; Commitment; Coase conjecture
Abstract: We consider negotiations with an open time horizon where a buyer has private information about his valuation and does not know whether the seller is committed to the advertised price. This setting combines two common specifications made in the non-cooperative bargaining literature: one side is privately informed about its valuation, which is drawn from a continuum, and the other side is possiblycommitted to a fixed offer. We analyze the game both in discrete and in continuous time and show convergence of the two settings, which extends results from Abreu and Gul [2000. Bargaining and reputation. Econometrica 68, 85–117]. One interesting result is that as time proceeds, the non-committedseller becomes less likely to concede in a given period, i.e., it appears as if he becomes more “stubborn.” We further show that aseller may prefer to negotiate with a “worse” buyer as this enhances the value of his possible commitment.