Working Paper: CEPR ID: DP10327
Authors: Kristf Madarsz
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.
Keywords: bargaining; Coase conjecture; information projection; pricing
JEL Codes: C79; D03
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Buyer's information projection (F17) | Seller's payoff (G19) |
| Allowing the buyer to bargain (D44) | Seller's payoff (G19) |
| Delay between offers decreases (C41) | Seller can extract more surplus (D46) |
| Small degree of information projection (D89) | Seller maintains higher initial price (D44) |
| Small degree of information projection (D89) | Seller extracts full surplus from trade (D41) |