Infinite bargaining and incomplete information

Infinite bargaining and incomplete information

Abstract
In practice, bilateral bargaining situations over selling a single good might fail despite of value depreciation. Real estate market is a notable example where in some cases we can observe decay of entire residential areas. This paper models the problem in non-cooperative bargaining model with incomplete information. The buyer obtains noisy private information concerning the valuation of the commodity. While the price converges to zero, there is a positive probability of no transaction in finite time. If we allow the seller to receive a noisy signal of the valuation, obtaining no additional information is sustained in equilibrium. The study is extended to a model in which the support of buyer types follow a discrete Markov process. We conclude that adaptation of prices is faster during depression than during an economic boom.
infinite bargaining

Infinite bargaining and incomplete information

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