Bargaining under the Illusion of Transparency

Madarász, Kristóf

No 10327, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: An uninformed seller offers an object to a privately informed buyer. The buyer projects information and exaggerates the probability that the seller is informed. Letting the buyer bargain and name her own price raises the seller's payoff above the full-commitment payoff. Under seller-offer bargaining, any positive degree of projection implies a full reversal of the Coasian result in stationary strategies. As delay between offers decreases, the seller raises his initial price and, in the limit, extracts the full surplus from trade. Dynamic bargaining without price-commitment is revenue-optimal. Existing experimental evidence is consistent with the comparative static predictions of the model.

Keywords: Bargaining; Coase conjecture.; Information projection; Pricing (search for similar items in EconPapers)
JEL-codes: C79 D03 (search for similar items in EconPapers)
Date: 2015-02
New Economics Papers: this item is included in nep-exp, nep-gth and nep-mic
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