Dominance and Equilibrium in Two-Person Alternating-Offer Bargaining with an Endogenous Deadline

We study an alternating-offer bargaining game with a deadline from which the size of the cake decays. We consider both the cases of complete and one-sided incomplete information about players’ outside options. We characterize the set of strategy profiles that survive notions of iterated dominance and show how it restricts the behaviour of the players. We also study the relationship between this set of strategies and the set of subgame perfect equilibria (or perfect Bayesian equilibria). Then, we endogenize the choice of the deadline and we find that bargaining game is characterized by a deadline effect.