Alternating-offer Bargaining with the Global Games Information Structure

Dec 28, 2016

Working Paper No. 00008-00

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This paper studies frequent-offer limits of perfect Bayesian equilibria in the alternating-offer bilateral bargaining model with private correlated values. The correlation of values is modeled via the global games information structure: values depend on the unobserved quality of the object and idiosyncratic factors. For any level of correlation we construct a punishing path that exhibits the Coasian dynamics and enables to sustain a variety of outcomes even when the correlation of values is almost perfect. We characterize the Pareto frontier of frequent-offer PBE limits as the correlation approaches perfect and show that such limits exhibit no delay, but the surplus split generally differs from that in the complete-information game. We also construct frequent-offer PBE limits that exhibit trade delays even when the correlation of values is close to perfect. Our findings highlight the role of public information for bargaining delays.

Anton Tsoy

Anton Tsoy

University of Toronto