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Events of Department of Economics

December 1, 2020 at 12:45 - 14:00

Seminar (Joint with the Department of Decision Sciences)

Theory and Experiments Series

Learning while Bargaining: Experimentation and Coasean Dynamics

Niccolò Lomys, Toulouse School of Economics



I study dynamic bargaining with one-sided incomplete information when superior outside options may arrive during negotiations. A seller makes price offers at every instant to a buyer. The seller has no commitment power, and the buyer is privately informed about his own valuation. Gains from trade are ex ante uncertain: in a good-match type of market, no outside option exists; in a bad-match type of market, outside options stochastically arrive for either or both parties. The two parties begin their negotiations with the same belief about the market type. Arrivals are public and learning about the market type is common.  In equilibrium, either there is an initial period with no trade or trade starts with a burst. Afterward, the seller screens out buyer types one by one as uncertainty about the market type unravels. Delay is always present. It is efficient with independent private valuations. Instead, with (endogenously) interdependent valuations, the timing of agreements is inefficient. Inefficiently late and inefficiently early agreements can both arise as equilibrium outcomes. I link the type of inefficiency to the sign of the externality among the seller's multiple selves. Whether prices increase or decrease over time depends on which party has a higher option value of waiting to learn. When the seller can clear the market in finite time at a positive price, prices are higher than the competitive price. This, however, need not be at odds with efficiency.


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