Using Information Strategically Bargainers typically do not know exactly the other's valuation, alternative opportunities, costs of delay, and commitment possibilities. These are all private information. Suppose a seller has cars for sale which cost the seller $1000 each and that there are two kinds of buyers (50 of each), one values the car at $1040 and the other, $1100 but the seller cannot distinguish between the two. The seller makes a take-it-or- leave-it offer. What price should he charge? Private information means that some mutually beneficial sales are not made. Private information can be a source of bargaining power, resulting in extra gains going to the holder of the information. Suppose the lower valuation is $1060, then the seller charges $1060 and the high-valuation customers get a windfall from their private information. Overcoming an Informational Disadvantage Screening means structuring the negotiations to induce the other party to reveal private information.
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This note was uploaded on 11/22/2011 for the course FIN FIN1100 taught by Professor Bradrifkin during the Fall '09 term at Broward College.