Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Mar, 1986, Volume 54, Issue 2

An Example of Price Formation in Bilateral Situations: A Bargaining Model with Incomplete Information<313:AEOPFI>2.0.CO;2-K
p. 313-322

Motty Perry

A seller and a buyer make offers and counteroffers to one another until they reach an agreement, or else one side decides to terminate the negotiations. Neither side knows the value of the other of reaching an agreement. It is shown,using the concept of sequential equilibrium, that if there are known fixed costs in bargaining, then the bargaining must terminate in a single round. The side with the lower costs of waiting makes an offer which the other side either accepts or rejects by terminating the bargaining.

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