Bargaining While Learning About New Arrivals, Second Version

Chong Huang () and Fei Li ()
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Chong Huang: Paul Merage School of Business, University of California, Irvine

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: We study dynamic bargaining with uncertainty over the buyer's valuation and the seller's outside option. A long-lived seller makes offers to a long-lived buyer whose value is private information. There may exist a short-lived buyer whose value is higher than that of the long-lived buyer. The arrival of the short-lived buyer, if she exists, is determined by a Poisson process. We characterize the unique equilibrium. The equilibrium displays interesting price fluctuations: in some periods, the seller charges a high price unacceptable to the long-lived buyer, in the hope that the short-lived buyer will appear in that period; in the other periods, he offers a price attractive to some values of the long-lived buyer. The price dynamics result from the interaction between two learning processes: exogenous learning about the existence of short-lived buyers, and endogenous learning about the long-lived buyer's value.

Keywords: Sequential Bargaining; Private Information; Learning; Delay; Price Fluctuation (search for similar items in EconPapers)
JEL-codes: C78 D42 D82 D83 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2011-12-01, Revised 2013-05-21
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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:13-033

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