Bargaining with Two-Sided Incomplete Information: An Infinite Horizon Model with Alternating Offers.

This paper examines an infinite-horizon bargaining model, incorporating two-sided incomplete information, uncertainty concerning the potential gains from trade, an illumination of interesting qualitative bargaining issues, and plausible equilibria. These features have powerful implications. A Nash equilibrium exists, and is generically both unique and sequential. Comparative static implications of variations in the game's specifications are developed. The authors find that natural indications of bargaining strength emerge from the model, and establish the intuitive result that an increase in a player's relative bargaining strength makes that player more likely to capture the gains from bargaining. Copyright 1987 by The Review of Economic Studies Limited.