Incomplete Information Bargaining with Outside Opportunities

Jean Tirole, David Levine and Drew Fudenberg

Scholarly Articles from Harvard University Department of Economics

Abstract: We consider two kinds of ‘outside opportunity’ that a seller of an indivisible good might have: selling to a different buyer and consuming the good herself. In both models the seller is uncertain about the buyer's valuation, and becomes more pessimistic over time. When the seller becomes sufficiently pessimistic, she prefers the outside opportunity, so she will not bargain indefinitely with the current buyer. Despite the resulting finite-horizon nature of negotiations, the link between the buyer's willingness to accept an offer and the seller's eagerness to go "outside" generates multiple equilibria.

Date: 1987
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Published in Quarterly Journal of Economics

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Journal Article: Incomplete Information Bargaining with Outside Opportunities (1987)
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Persistent link: https://EconPapers.repec.org/RePEc:hrv:faseco:3196301

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