Bargaining over a divisible good in the market for lemons

Dino Gerardi, Lucas Maestri and Ignacio Monzon

No 14920, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study bargaining with divisibility and interdependent values. A buyer and a seller trade a durable good divided into finitely many units. The seller is privately informed about the good's quality, which can be either high or low. Gains from trade are positive and decreasing in the number of units traded by the parties. In every period, the buyer makes a take-it-or-leave-it offer that specifies a price and a number of units. Divisibility introduces a new channel of competition between the buyer's present and future selves. The buyer's temptation to split the purchases of the high-quality good is detrimental to him. As bargaining frictions vanish and the good becomes arbitrarily divisible, the high-quality good is traded smoothly over time and the buyer's payoff shrinks to zero.

Keywords: Bargaining; Gradual sale; Coase conjecture; Divisible objects; Interdependent valuations; Market for lemons (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-com and nep-mic
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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 (2013)
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