Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/256775 
Year of Publication: 
2022
Series/Report no.: 
Discussion Paper No. 308
Publisher: 
Ludwig-Maximilians-Universität München und Humboldt-Universität zu Berlin, Collaborative Research Center Transregio 190 - Rationality and Competition, München und Berlin
Abstract: 
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.
Subjects: 
alternating offers
bargaining
time preferences
haggling costs
outside options
JEL: 
C78
D03
D74
Document Type: 
Working Paper

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