Bargaining with asymmetric information in non-stationary markets
In the paper the author imbeds into a market an extensive form game in which an uninformed seller makes all the offers to an informed buyer. Here, the generically unique sequential equilibrium outcome for this game is characterized. This result is used to establish the existence of a market equilibrium and to characterize its generically unique outcome. The impact of market supply and demand on bilateral bargaining outcomes and matching probabilities is explored. Moreover, it is shown how these conclusions can be extended to a large class of extensive-form bargaining games including games with alternating offers, two-sided uncertainty, and outside options. The results are useful for investigation of such questions as why coordination failures and macroeconomics output fluctuations are correlated with real and monetary shocks.
scientific article; zbMATH DE number 1310139