2,923 research outputs found
Bargaining under Incomplete Information, Fairness, and the Hold-Up Problem
In the hold-up problem incomplete contracts cause the proceeds of relation specific investments to be allocated by ex-post bargaining. The present paper investigates the efficiency of incomplete contracts if individuals have heterogeneous preferences implying heterogeneous bargaining behavior and - equally important - preferences are private information. As the sunk investment costs can thus potentially signal preferences, they can influence beliefs and consequently bargaining outcomes. The necessities of signalling are shown to generate very strong investment incentives. These incentives are based on the desire not to reveal information that is unfavorable in the ensuing bargaining. After finding all perfect Bayesian equilibria in pure strategies, the paper derives the necessary and sufficient conditions under which it is optimal to invest and trade efficiently
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Markov Equilibria in Dynamic Matching and Bargaining Games
Rubinstein and Wolinsky (1990) show that a simple homogeneous market with exogenous matching has continuum of (non-competitive) perfect equilibria, but the unique Markov perfect equilibrium is competitive. By contrast, in the more general case of heterogeneous markets, we show there exists a continuum of (non-competitive) Markov perfect equilibria. However, a refinement of the Markov property, which we call monotonicity, does suffice to guarantee perfectly competitive equilibria, if, and only if, it is monotonic. The monotonicity property is closely related to the concept of Nash equilibrium with complexity costs
Markov bargaining games
I consider an alternating offer bargaining game which is played by a risk neutral buyer and seller, where the value of the good to be traded follows a Markov process. For these games the existence of a perfect equilibrium is proved and the set of equilibrium payoffs and strategies are characterised. The main results are (a) if the buyer is less patient than the seller, then there will be delays in the players reaching an agreement, the buyer is forced into a suboptimal consumption policy and the equilibrium is ex-ante inefficient, and (b) if the buyer is more patient than the seller, then there is a unique and efficient equilibrium where agreement is immediate
Bargaining with Incomplete Information
A central question in economics is understanding the difficulties that parties have in reaching mutually beneficial agreements. Informational differences provide an appealing explanation for bargaining inefficiencies. This chapter provides an overview of the theoretical and empirical literature on bargaining with incomplete information. The chapter begins with an analysis of bargaining within a mechanism design framework. A modern development is provided of the classic result that, given two parties with independent private valuations, ex post efficiency is attainable if and only if it is common knowledge that gains from trade exist. The classic problems of efficient trade with one-sided incomplete information but interdependent valuations, and of efficiently dissolving a partnership with two-sided incomplete information, are also reviewed using mechanism design. The chapter then proceeds to study bargaining where the parties sequentially exchange offers. Under one-sided incomplete information, it considers sequential bargaining between a seller with a known valuation and a buyer with a private valuation. When there is a "gap" between the seller's valuation and the support of buyer valuations, the seller-offer game has essentially a unique sequential equilibrium. This equilibrium exhibits the following properties: it is stationary, trade occurs in finite time, and the price is favorable to the informed party (the Coase Conjecture). The alternating-offer game exhibits similar properties, when a refinement of sequential equilibrium is applied. However, in the case of "no gap" between the seller's valuation and the support of buyer valuations, the bargaining does not conclude with probability one after any finite number of periods, and it does not follow that sequential equilibria need be stationary. If stationarity is nevertheless assumed, then the results parallel those for the "gap" case. However, if stationarity is not assumed, then instead a folk theorem obtains, so substantial delay is possible and the uninformed party may receive substantial surplus. The chapter also briefly sketches results for sequential bargaining with two-sided incomplete information. Finally, it reviews the empirical evidence on strategic bargaining with private information by focusing on one of the most prominent examples of bargaining: union contract negotiations.Bargaining; Delay; Incomplete Information
Price Competition in Online Combinatorial Markets
We consider a single buyer with a combinatorial preference that would like to
purchase related products and services from different vendors, where each
vendor supplies exactly one product. We study the general case where subsets of
products can be substitutes as well as complementary and analyze the game that
is induced on the vendors, where a vendor's strategy is the price that he asks
for his product. This model generalizes both Bertrand competition (where
vendors are perfect substitutes) and Nash bargaining (where they are perfect
complements), and captures a wide variety of scenarios that can appear in
complex crowd sourcing or in automatic pricing of related products.
We study the equilibria of such games and show that a pure efficient
equilibrium always exists. In the case of submodular buyer preferences we fully
characterize the set of pure Nash equilibria, essentially showing uniqueness.
For the even more restricted "substitutes" buyer preferences we also prove
uniqueness over {\em mixed} equilibria. Finally we begin the exploration of
natural generalizations of our setting such as when services have costs, when
there are multiple buyers or uncertainty about the the buyer's valuation, and
when a single vendor supplies multiple products.Comment: accept to WWW'14 (23rd International World Wide Web Conference
Markets with bilateral bargaining and incomplete information
We study the relationship between bargaining and competition with incomplete information. We consider a model with two uninformed and identical buyers and two sellers. One of the sellers has a privately-known reservation price, which can
either be Low or High. The other seller’s reservation price is commonly known to be in between the Low and High values of the privately-informed seller. Buyers move in sequence, and make offers with the second buyer observing the offer
made by the first buyer. The sellers respond simultaneously. We show that there are two types of (perfect Bayes) equilibrium. In one equilibrium, the buyer who moves second does better. In the second equilibrium, buyers’ expected payoffs are equalised, and the price received by the seller with the known reservation value is determined entirely by the equuilibrium of the two-player game between a single buyer and an informed seller. We also discuss extensions of the model to multiple buyers and sellers, and to the case where both sellers are privately informed
Bargaining under Incomplete Information, Fairness, and the Hold-Up Problem
In the hold-up problem incomplete contracts cause the proceeds of relation-specific investments to be allocated by ex-post bargaining. The present paper investigates the efficiency of incomplete contracts if individuals have heterogeneous preferences implying heterogeneous bargaining behavior and - equally important - preferences are private information. As the sunk investment costs can thus potentially signal preferences, they can influence beliefs and consequently bargaining outcomes. The necessities of signalling are shown to generate very strong investment incentives. These incentives are based on the desire not to reveal information that is unfavorable in the ensuing bargaining. After finding all perfect Bayesian equilibria in pure strategies, the paper derives the necessary and sufficient conditions under which it is optimal to invest and trade efficiently.Incomplete Contracts; Hold-Up; Fairness; Bargaining under Incomplete Information; Signalling
Bargaining under Incomplete Information, Fairness, and the Hold-Up Problem
In the hold-up problem incomplete contracts cause the proceeds of relation specific investments to be allocated by ex-post bargaining. The present paper investigates the efficiency of incomplete contracts if individuals have heterogeneous preferences implying heterogeneous bargaining behavior and - equally important - preferences are private information. As the sunk investment costs can thus potentially signal preferences, they can influence beliefs and consequently bargaining outcomes. The necessities of signalling are shown to generate very strong investment incentives. These incentives are based on the desire not to reveal information that is unfavorable in the ensuing bargaining. After finding all perfect Bayesian equilibria in pure strategies, the paper derives the necessary and sufficient conditions under which it is optimal to invest and trade efficiently.Incomplete Contracts; Hold-Up; Fairness; Bargaining under Incomplete Information; Signalling
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