Bargaining with common values (Q1262825)

This paper examines a bargaining model with asymmetric information in which the private valuations of the two bargaining agents are correlated. It shows that equilibria in such models typically exhibit a significant probability of a significant delay to agreement. The paper characterizes the unique perfect Bayesian equilibrium to the game in which an uninformed buyer makes offers to a privately informed sellers. It also shows, by example, that in this framework bargainers may rationally break off negotiations even in the presence of commonly known gains from trade.