Cheap talk can matter in bargaining (Q1263539)

The authors describe an intuitive way in which cheap talk can matter in a two stage bargaining game in which talk may be followed by serious negotiation. The intuition that all buyers would claim to have low reservation price is incorrect in their model. Instead, if good-faith participation is endogenously determined then the parties can use talk to trade off bargaining position against the probability of continued negotiation. Their cheap talk equilibrium features bargaining behavior that could not be equilibrium behavior in absence of talk.