Bargaining under the Illusion of Transparency
- American Economic Review (Forthcoming)
This paper studies bargaining with non-common priors where the buyer projects and
exaggerates the probability that her private information may leak to the seller. Letting
the buyer name her price first, raises the seller's payoff above his payoff from posting a
price. In seller-offer bargaining, projection implies a partial reversal of classic Coasian
comparative static results. Weakening price commitment can benefit the seller and,
as long as the relative speed at which imaginary information versus offers arrive does
not converges to zero too quickly, frictionless bargaining converges to a fast haggling
process which allows the seller to extract all surplus from trade. Bargaining under
common prior transparency is instead slow and becomes equivalent to simply waiting.
The comparative static predictions are consistent with experimental evidence.
Forthcoming Article Downloads