We study an incomplete-information model of sequential bargaining for a single object, with the novel feature that agents are located in a network. In each round of trade, the current owner of the object either consumes it or makes a take-it-or-leave-it offer to some connected trader.Traders may buy in order to consume or to resale to others. We show that the equilibrium price dynamics is non-monotone and that traders that intermediate the object arise endogenously and attain a profit. We also provide insights on how traders' equilibrium payoffs depend on their location in the network.Keywords: Bargaining, Bilateral Trading, Asymmetric Information, Networks.JEL Codes: C78, D82, D85 * We thank Yeon-Koo Che, Eddie Dekel, Sanjeev Goyal, Philippe Jehiel, Claudio Mezzetti, Alessandro Pavan, Mark Satthertwaite, Balazs Sezntes, Asher Wolinsky and Rakesh Vohra for detailed comments. We also thank seminar audiences at Bonn,
We analyze a bilateral trade model where the buyer can choose the probability distribution of her valuation for the good. The seller, after observing the buyer's choice of the distribution but not the realized valuation, makes a take-it-or-leave-it offer. If the buyer's choice of the distribution is costless, the price and the payoffs of both the buyer and the seller are shown to be 1/e in the unique equilibrium outcome. The equilibrium distribution of the buyer's valuation generates a unit-elastic demand and trade is ex-post efficient. These two properties are shown to be preserved even when different distributions are differentially costly as long as the cost is monotone in the dispersion of the distribution.
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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract Both market (e.g. auctions) and non-market mechanisms (e.g. lotteries and priority lists) are used to allocate a large amount of scarce public resources that produce large private benefits and small consumption externalities. I study a model in which the use of both market and non-market mechanisms can be rationalized. Agents are risk neutral and heterogeneous in terms of their monetary value for a good and their opportunity cost of money, which are both private information. The designer wants to allocate a set of identical goods to the agents with the highest values. To achieve her goal, she can screen agents on the basis of their observable characteristics, and on the basis of information on their willingness to pay that she can extract using market mechanisms. In contrast to models where willingness to pay and value coincide, a first best cannot be achieved. My main result is that both market and non-market mechanisms, or hybrid mechanisms, can be optimal depending on the prior information available to the designer. In particular, non-market mechanisms may be optimal if the value is positively correlated with the opportunity cost of money.
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