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Sequential Bargaining with Incomplete Information

Drew Fudenberg¹; Jean Tirole²

¹ University of California, Berkeley · ² École nationale des ponts et chaussées

This paper describes a simple two-person, two-period bargaining game, and solves it using the concept of perfect Bayesian equilibrium, in which the actions of each player convey information which is used by his opponent. The paper examines the effects of changes in bargaining costs, the size of the “contract zone” and the length of the bargaining process on such aspects of the solution as the probability of impasse and the likelihood of concessions. The combination of information transfer and the lack of pre-commitment embodied in perfectness yields many surprising results. Common perceptions about the effects of parameter changes on bargaining processes are suspect, and should be checked in the particular game being discussed.

DOI

10.2307/2297414

Volume

50 (2)

Pages

221

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