 Equilibrium opacity in ultimatum‐offer bargainingJournal of Public Economic Theory, 2020, vol. 22, issue 5, 1515-1529 Abstract: We consider ultimatum bargaining between a seller and a buyer of an asset. They know each other's valuation of the asset. Both can defer their decisions to delegates. These delegates have opaque preferences. Seller and buyer choose the opacity of their delegate. For the seller's delegate this choice is restricted to a random reservation price drawn from the set of symmetric two‐point distributions around the seller's true reservation price. The opacity choice of the buyer's delegate is restricted to a random willingness‐to‐pay drawn from the set of symmetric two‐point distribution around the buyer's true willingness‐to‐pay. We characterize the set of pure‐strategy equilibria in their delegation choices. Multiple equilibria arise. Except for two corner solutions, both players will exploit the strategy of opacity. A large set of efficient equilibria exist. For these, opacity choices do not reduce the probability of transacting, but benefit the buyer compared with the no‐delegation equilibrium. We also study the robustness of the results with respect to the player's ability to also resort to a tougher delegate in addition to the opacity choice. Date: 2020 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:jpbect:v:22:y:2020:i:5:p:1515-1529 Ordering information: This journal article can be ordered from Access Statistics for this article Journal of Public Economic Theory is currently edited by Rabah Amir, Gareth Myles and Myrna Wooders More articles in Journal of Public Economic Theory from Association for Public Economic Theory Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.