American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Bargaining over a Divisible Good in the Market for Lemons
American Economic Review
vol. 112,
no. 5, May 2022
(pp. 1591–1620)
Abstract
We study bargaining with divisibility and interdependent values. A buyer and a seller trade a divisible good. The seller is privately informed about its quality, which can be high or low. Gains from trade are positive and decreasing in quantity. The buyer makes offers over time. Divisibility introduces a new channel of competition between the buyer's present and future selves. The buyer's temptation to split the purchases of the high-quality good is detrimental to him. As bargaining frictions vanish and the good becomes arbitrarily divisible, the high-quality good is traded smoothly over time and the buyer's payoff shrinks to zero.Citation
Gerardi, Dino, Lucas Maestri, and Ignacio Monzón. 2022. "Bargaining over a Divisible Good in the Market for Lemons." American Economic Review, 112 (5): 1591–1620. DOI: 10.1257/aer.20201718Additional Materials
JEL Classification
- C78 Bargaining Theory; Matching Theory
- D82 Asymmetric and Private Information; Mechanism Design
- L15 Information and Product Quality; Standardization and Compatibility