strategic inaccuracy in bargaining

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1、TSE‐541November2014“StrategicInaccuracyinBargaining”SinemHidirStrategicInaccuracyinBargainingSinemHidiryNovember2014AbstractThispaperstudiesabuyer-sellergamewithpre-tradecommunicationofprivatehorizontaltastefromthebuyerfollowedbyatakeitorleaveitoerbytheseller.Theamountofinformationtr

2、ansmittedimprovesthegainsfromtrade,butalsodetermineshowthissurpluswillbesharedbetweenthetwo.Lackofcommitmenttoapricecreatesahold-upproblemandatradeobetweeneciencyandrentextraction.Inthissetting,coarseinformationarisesduetotheconcernsonthetermsofthetransaction.Asthepreferencesgetlessi

3、mportant,informationtransmissionbecomeslessprecise.Itisshownthatinthebuyeroptimalequilibriaofthestaticanddynamicgames,themessagessentarejustinformativeenoughtoensuretrade.Inthedynamicgame,thebuyerisalwaysbetterosendinginfor-mativemessagesonlyattherstperiod,implyingnogainsfromgradualr

4、evelationofinformation.Keywords:information;cheap-talk;bargaining;buyer-sellerrelationJELclassication:C72;D83IamgratefultomyadvisorJacquesCremerforhistimeandadvice,alsoLucasMaestriandHarryDiPeiforusefulcomments.IhavealsobenetedfromdiscussionsSFBSeminarMannheim,NASMinMinnesotaandEEA

5、-ESEMinToulouse.Mistakesremainmine.yToulouseSchoolofEconomics.email:sinem.hidir@tse-fr.eu11IntroductionCommunicationplaysanimportantroleinbilateralrelationsinthepresenceofprivateinformation.Insettingswherethereisroomfornegotiation,thepartieswanttobestrategicwhenrevealingtheirpreference

6、s.Abuyermaynotwanttorevealherpreferenceoverdierentoptionswhenfacinganopportunisticseller,inordertoavoidlosinginformationrents.Amongthegoodsthathavethesameintrinsicvalue,thesellercouldproposeadierentpricedependingonhowmuchheestimatesthevaluationofthebuyeris.Byprovidingonlyanestimateof

7、herpreferredoption,thebuyercouldavoidgivingupallbargainingpowertotheseller.Thispaperaddressestheissueofhowabuyercanstrategicallyrevealherpreferencestoanuncommittedsellerviapre-tradecommunication.Therearecaseswhenabuyerchooseshowmuchinformationtoreveal.Whengoingtoarealestateagencyinse