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Bargaining under the Illusion of Transparency

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  • Madarász, Kristóf

Abstract

An uninformed seller offers an object to a privately informed buyer. The buyer projects information and exaggerates the probability that the seller is informed. Letting the buyer bargain and name her own price raises the seller's payoff above the full-commitment payoff. Under seller-offer bargaining, any positive degree of projection implies a full reversal of the Coasian result in stationary strategies. As delay between offers decreases, the seller raises his initial price and, in the limit, extracts the full surplus from trade. Dynamic bargaining without price-commitment is revenue-optimal. Existing experimental evidence is consistent with the comparative static predictions of the model.

Suggested Citation

  • Madarász, Kristóf, 2015. "Bargaining under the Illusion of Transparency," CEPR Discussion Papers 10327, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:10327
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    References listed on IDEAS

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    More about this item

    Keywords

    Bargaining; Coase conjecture.; Information projection; Pricing;
    All these keywords.

    JEL classification:

    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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