This paper examines the equilibrium bargaining behavior under one-sided incomplete information. We analyze the two period alternating offer bargaining game between the buyer and the seller where the buyer offers first. The buyer's valuation of the se...
This paper examines the equilibrium bargaining behavior under one-sided incomplete information. We analyze the two period alternating offer bargaining game between the buyer and the seller where the buyer offers first. The buyer's valuation of the seller's object is unknown to the seller. However, the seller's reservation price is common knowledge. We find the perfect Bayesian equilibrium for this game. Our results show that if the prior probability of H type buyer is low, there exists a pooling equilibrium where the H type buyer pretends to be the L type buyer. On the other hand if the probability of H type buyer is high, then there exists a mixed strategy equilibrium where the H type buyer randomizes. The primary reason for the randomization is to reduce the seller's belief on the H type buyer.