Working Paper: CEPR ID: DP14920
Authors: Dino Gerardi; Lucas Maestri; Ignacio Monzon
Abstract: We study bargaining with divisibility and interdependent values. A buyer and a seller trade a durable good divided into finitely many units. The seller is privately informed about the good's quality, which can be either high or low. Gains from trade are positive and decreasing in the number of units traded by the parties. In every period, the buyer makes a take-it-or-leave-it offer that specifies a price and a number of units. Divisibility introduces a new channel of competition between the buyer's present and future selves. The buyer's temptation to split the purchases of the high-quality good is detrimental to him. As bargaining frictions vanish and the good becomes arbitrarily divisible, the high-quality good is traded smoothly over time and the buyer's payoff shrinks to zero.
Keywords: bargaining; gradual sale; coase conjecture; divisible objects; interdependent valuations; market for lemons
JEL Codes: C78; D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Divisibility (D30) | Competitive tension (D43) |
| Competitive tension (D43) | Buyer payoff (D44) |
| Divisibility (D30) | Buyer payoff (D44) |
| Screening offers (C78) | Rejections from high-type sellers (D44) |
| Rejections from high-type sellers (D44) | Buyer optimism about good's quality (L15) |
| Buyer optimism about good's quality (L15) | Purchases through universal offers (M31) |
| Purchases through universal offers (M31) | Buyer payoff (D44) |