Keywords: Bilateral Bargaining, Non-Verifiable
Information, Quality Choice
JEL--Classification: C78, L14, L15, D82
The paper considers an
alternating-offers bargaining game between a buyer and a seller who
face several trading opportunities (goods). The goods differ in their
characteristics (quality) which are observable but non-verifiable. We
completely characterize the set of subgame-perfect equilibria for the
special case of two goods. Qualitatively different types of equilibrium
outcomes occur depending on the parameters of the model: (a) the unique
subgame-perfect equilibrium may entail inefficient trade, (b) the
efficiency of the outcome may depend on who moves first in the
bargaining process, and (c) multiple equilibria may exist including
equilibria with delay in negotiations. As an extension, we allow the
parties to renegotiate which is shown to re-establish uniqueness and
efficiency of equilibrium if the parties are sufficiently patient.
There exists a monotonic relationship between the players' patience and
efficiency in this case. Finally, we derive a sufficient condition for
a unique and efficient equilibrium to exist for the case of a continuum
of trading opportunities.
Copyright © 1998 Anke Kessler