Bargaining over a Divisible Good in the Market for Lemons

Dino Gerardi and Lucas Maestri

No 312, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: A seller dynamically sells a divisible good to a buyer. It is common knowledge that there are gains from trade and that the gains per unit are decreasing. Payoffs are interdependent as in Akerlof's market for lemons. The seller is informed about the good's quality. The buyer makes an offer in every period and learns about the good's quality only through the seller's behavior. We characterize the stationary equilibrium when the time between offers is small. The owner of a high-quality good sells it in dribs and drabs, whereas the owner of a low-quality good constantly randomizes between selling small pieces and accepting an offer for all the remaining units. We use this characterization to analyze the limiting equilibrium outcome as the good becomes more divisible. We prove that there is slow trading: a valuable good is smoothly sold over time. In contrast, the good is never partially sold when gains per unit are increasing.

Keywords: bargaining; divisible objects; interdependent valuations; market for lemons. (search for similar items in EconPapers)
JEL-codes: C78 D82 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2013
New Economics Papers: this item is included in nep-com, nep-cta, nep-gth and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Bargaining over a Divisible Good in the Market for Lemons (2022)
Working Paper: Bargaining over a Divisible Good in the Market for Lemons (2022)
Working Paper: Bargaining over a divisible good in the market for lemons (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:312

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