Coasian Bargaining with An Arriving Outside Option

Ilwoo Hwang () and Fei Li ()
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Ilwoo Hwang: Department of Economics, University of Pennsylvania

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: We consider Coasian bargaining problems where the buyer has an outside option arriving at a stochastic time. We study both observable outside option models and unobservable outside option models. In both models, we show that a Coasian equilibrium exists if (1) the arrival of the outside option is public, or (2) the arrival of the outside option is private but the arrival probability is small enough. (1) the seller makes multiple rounds of offers, and (2) the Coase conjecture holds for an arbitrarily large arrival rate of the outside option. The result also applies to the time-varying outside option model. This exercise helps us to understand the sharp difference between Board and Pycia (2013), where the buyer's outside option is always available, and the standard Coasian bargaining literature, where the buyer has no outside option.

Keywords: Bargaining; Arriving Outside Option; Dynamic Games; Coase Conjecture (search for similar items in EconPapers)
JEL-codes: C78 D74 D83 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2013-08-25
New Economics Papers: this item is included in nep-gth and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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