The bargaining trap

I revisit the Rubinstein (1982) model for the classic problem of price hag- gling and show that bargaining can become a 'trap,' where equilibrium leaves one party strictly worse off than if no transaction took place (e.g., the equilibrium price exceeds a buyer's valuation). This arises when one party is impatient about capturing zero surplus (e.g., Rubinstein's example of fixed bargaining costs). Augmenting the protocol with unilateral exit options for responding bargainers generally removes the trap.

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Year of publication:	2022
Authors:	Schweighofer-Kodritsch, Sebastian
Publisher:	München und Berlin : Ludwig-Maximilians-Universität München und Humboldt-Universität zu Berlin, Collaborative Research Center Transregio 190 - Rationality and Competition
Subject:	alternating offers \| bargaining \| time preferences \| haggling costs \| outside options

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Series:	Discussion Paper ; 308
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	1801381755 [GVK] hdl:10419/256775 [Handle]
Classification:	C78 - Bargaining Theory; Matching Theory ; D03 - Behavioral Economics; Underlying Principles ; D74 - Conflict; Conflict Resolution; Alliances
Source:	EconStor

Persistent link: https://www.econbiz.de/10013197548