Bargaining With Common Values

Daniel R. Vincent , Journal of Economic Theory 48(1) , 47-62 , June 1989.

This paper examines a bargaining model with asymmetric information in which the private valuations of the two bargaining agents are correlated. It shows that equilibria in such models typically exhibit a significant probability of a significant delay to agreement. The paper characterizes the unique perfect Bayesian equilibrium to the game in which an uninformed buyer makes offers to a privately informed seller. It also shows, by example, that in this framework bargainers may rationally break off negotiations even in the presence of commonly known gains from trade.

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