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Buying the Option to say "No"

Author

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  • Gunther Lang

Abstract

We analyze a simple model of bilateral bargaining under asymmetric information where the seller of an object can not simply say "no" by default to a buyer who is supposed to make a take-it-or-leave-it oer. Rather, he must acquire this option before the actual bargaining process begins. This choice is observable to the buyer, and hence, the seller's prebargaining action might signal private information. We develop a complete characterization of Perfect Bayesian Equilibrium in pure and (strictly) mixed strategies for this game. Then the model is compared to a standard bargaining setting in terms of the realization of welfare enhancing propertyright changes.

Suggested Citation

  • Gunther Lang, 2000. "Buying the Option to say "No"," Nova SBE Working Paper Series wp397, Universidade Nova de Lisboa, Nova School of Business and Economics.
    • Handle: RePEc:unl:unlfep:wp397
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    More about this item

    Keywords

    Bargaining; signalling;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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