Author: Dongkyu Chang, Jong Jae Lee

Abstract: This paper studies a bargaining problem in which the buyer's valuation and outside option are private information. We show that there exists a non-stationary equilibrium in which the seller can secure full commitment profit (from the optimal sales mechanism that exhibits price skimming) if and only if the buyer's outside option takes a zero value with positive probability (non-negligibly zero outside option). Our innovation is to show that (i) both the Coasean reversion and positive selection are necessary for the seller to secure the full commitment profit and (ii) the Coasean equilibria may coexist with positive selection despite their claimed incompatibility if the non-negligibly zero outside option exists.

Key words: Bargaining; Outside option; Commitment; Price skimming; Coase conjecture; Positive selection

This paper was published online in October 2022 in the Journal of Economic Theory, A class journals of the School of Economics and Management, Wuhan University

Paper link: https://www.sciencedirect.com/science/article/pii/S0022053122001181