2010 "Bargaining with Arrival of New Traders

We study a general model of dynamic bargaining between a seller and a privately informed buyer, with arrival of exogenous events. Events can represent arrival of competing buyers (or sellers) or release of information. We characterize the unique limit of stationary equilibria of these games as the time between offers goes to zero. The possibility of arrivals leads to new equilibrium dynamics. First, the no-delay part of the Coase conjecture no longer holds: even in the limit, there is considerable delay of trade in equilibrium and the seller slowly screens out buyers with higher valuations. Second, the inability to commit to future prices (and hence the Coasian forces) drive the seller payoffs down to his outside option. The limit of equilibria is very tractable, allowing us to establish many comparative statics and utilize the model to answer many applied questions. For example, we show applications in which when buyer valuations fall, average transaction prices drop and the time on the market gets longer. Moreover, for high enough arrival rates, the division of surplus and equilibrium dynamics are driven more by the relative competition from new traders than on the relative discount factors. Finally, even when multiple buyers can arrive, the expected time to trade is a non-monotonic function of the arriva