The Bargaining Trap

Sebastian Schweighofer-Kodritsch

No 9903, CESifo Working Paper Series from CESifo

Abstract: I revisit the Rubinstein (1982) model for the classic problem of price haggling and show that bargaining can become a “trap,” where equilibrium leaves one party strictly worse off than if no transaction took place (e.g., the equilibrium price exceeds a buyer’s valuation). This arises when one party is impatient about capturing zero surplus (e.g., Rubinstein’s example of fixed bargaining costs). Augmenting the protocol with unilateral exit options for responding bargainers generally removes the trap.

Keywords: alternating offers; bargaining; time preferences; haggling costs; outside options (search for similar items in EconPapers)
JEL-codes: C78 D03 D74 (search for similar items in EconPapers)
Date: 2022
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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