DP10327 Bargaining under the Illusion of Transparency

Author(s):	Kristóf Madarász
Publication Date:	February 2015
Keyword(s):	Bargaining, Coase Conjecture., Information Projection, Pricing
JEL(s):	C79, D03
Programme Areas:	Industrial Organization
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=10327

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.