SFB 303 Discussion Paper No. A - 303

Author: Schmidt, Klaus M.
Title: Commitment through Incomplete Information in a Simple Repeated Bargaining Model
Abstract: The paper analyzes a finitely repeated bargaining game with asymmetric information. It gives a precise characterization of the equilibrium path and the equilibrium payoffs of all sequential equilibria satisfying a weak Markov property. The method used allows for arbitrarily many different types and provides an intuitive understanding of how "reputation" works. It is shown that the seller can use the incomplete information about his costs to credibly threaten never to accept a price lower than his highest possible costs before the very end of the game. This result is independent of the discount factors of the two players.
Keywords: Bargaining, Commitment, Repeated Games, Reputation
JEL-Classification-Number: 022, 026
Creation-Date: July 1990
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