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The bargaining trap

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  • Schweighofer-Kodritsch, Sebastian

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 costless unilateral exit options for responding bargainers generally removes the trap.

Suggested Citation

  • Schweighofer-Kodritsch, Sebastian, 2022. "The bargaining trap," Games and Economic Behavior, Elsevier, vol. 136(C), pages 249-254.
    • Handle: RePEc:eee:gamebe:v:136:y:2022:i:c:p:249-254
    DOI: 10.1016/j.geb.2022.09.006
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
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    8. R. H. Coase, 2013. "The Problem of Social Cost," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 837-877.
    9. Schweighofer-Kodritsch, Sebastian, 2018. "Time Preferences and Bargaining," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 86(1), pages 173-217.
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    Cited by:

    1. Jeongbin Kim & Wooyoung Lim & Sebastian Schweighofer-Kodritsch, 2023. "Patience Is Power: Bargaining and Payoff Delay," Berlin School of Economics Discussion Papers 0015, Berlin School of Economics.

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    More about this item

    Keywords

    Alternating offers; Bargaining; Time preferences; Haggling costs; Outside options;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

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