Mihai Manea (Stony Brook )
"Bargaining with Exclusionary Commitments (with Dilip Abreu)"
Abstract: We study a bargaining problem in which a seller trades sequentially with multiple buyers. It may be profitable for the seller to create scarcity and induce competition by committing to trade only with specific subsets of buyers. In every round, the seller bargains with a buyer that does not violate her commitment. The game ends when the commitment rules out further trade, resulting in the “exclusion” of some buyers. We identify the optimal exclusion commitment, and show that flexibly trading with a fixed number of buyers enables the seller to extract higher profits than threatening to exclude particular buyers. In equilibrium, some buyers are included with certainty and split surplus equally with the seller. Buyers with lower valuations are excluded with positive probability; bargaining with these buyers is driven by a novel sequential outside option principle: given the engineered scarcity, the seller can sequentially exercise the outside option of trading with the lowest-value buyer, then the second lowest, and so on, enhancing her outside option at every round. We characterize the cutoff distinguishing buyers guaranteed to be included from those potentially excluded.
When: Friday 12th March 2021 - 4:00pm
Where: Zoom
Reading Group: Networks Webinar