Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/265938 
Year of Publication: 
2022
Series/Report no.: 
CESifo Working Paper No. 9903
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
I revisit the Rubinstein (1982) model for the classic problem of price haggling 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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