Equilibrium Partner Switching in a Bargaining Model with Asymmetric Information

Gianni De Fraja and Abhinay Muthoo

International Economic Review, 2000, vol. 41, issue 4, 849-69

Abstract: We study a model in which the seller of an indivisible object faces two potential buyers and makes an offer to either of them in each period. We find that the seller's ability to extract surplus from them depends crucially on the value of the cost of switching from one buyer to the next. If the seller is pessimistic about the buyers' valuations and there is a switching cost, however small, then the market is a natural bilateral monopoly; the second buyer is never called on. If the switching cost is zero, or if the seller is optimistic, then switching, and possibly recall of the original buyer, may occur. Copyright 2000 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 2000
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