Sequential Bargaining with Common Values

Abstract

We study the alternating-offers bargaining problem of assigning an indivisible and commonly valued object to one of two players who jointly own the object. The players are asymmetrically informed about the object's value and have veto power over any settlement. There is no depreciation during the bargaining process which involves signaling of private information. We characterize the perfect Bayesian equilibrium outcome of this game which is unique for strictly increasing offers. Equilibrium agreement is reached gradually and non-deterministically. The better informed player obtains a rent.

Keywords: Sequential bargaining, Common values, Incomplete information, Repeated games, Cake cutting

JEL Classification: C73, C78, D44, D82, J12