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The Role of Discounting in Bargaining with Private Information

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  • Francesc Dilmé

Abstract

In this paper we analyze a continuous-time Coase setting with finite horizon, interdependent values, and different discount rates for the buyer and seller. We fully characterize the equilibrium behavior, which permits us to study how the agents’ discount rates (i.e., patience levels) shape the bargaining outcome. We find that the seller’s commitment problem persists even when she is fully patient, and that higher seller impatience may lead to higher equilibrium prices. Higher buyer impatience, on the other hand, incentivizes the buyer to trade earlier, which accelerates price decline since the seller’s commitment problem is more severe at earlier times. Under appropriate conditions, we conclude that the buyer is better off when he is more impatient, independently of his private valuation; hence, higher bargaining costs may give negotiators with private information greater bargaining power.

Suggested Citation

  • Francesc Dilmé, 2023. "The Role of Discounting in Bargaining with Private Information," CRC TR 224 Discussion Paper Series crctr224_2023_479, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2023_479
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    References listed on IDEAS

    as
    1. Joel Sobel & Takahashi, 1983. "A Multi-stage Model of Bargaining," Levine's Working Paper Archive 255, David K. Levine.
    2. Berbeglia, Gerardo & Sloan, Peter & Vetta, Adrian, 2019. "The finite horizon, undiscounted, durable goods monopoly problem with finitely many consumers," Journal of Mathematical Economics, Elsevier, vol. 82(C), pages 171-183.
    3. Joel Sobel & Ichiro Takahashi, 1983. "A Multistage Model of Bargaining," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 50(3), pages 411-426.
    4. Michael Landsberger & Isaac Meilijson, 1985. "Intertemporal Price Discrimination and Sales Strategy under Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 424-430, Autumn.
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    More about this item

    Keywords

    Bargaining with private information; different discount factors;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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