Sequential bargaining with common values: The case of bilateral incomplete information∗

We study the alternating-offers bargaining problem of assigning an indivisible and com-monly valued object to one of two players in return for some payment to the other. The players are asymmetrically and imperfectly informed about the object’s value and have veto power over any settlement. There is no depreciation during the bargaining pro-cess which involves signalling of private information on both sides. We characterise the perfect Bayesian equilibrium of this game which has a unique outcome under strictly increasing offers. Equilibrium agreement is reached gradually and non-deterministically. The player obtaining the more precise signal appropriates a rent. (JEL C73, C78, D44