Seller-Buyer Bargaining Explained by Fixed Bargaining Costs, Risk Preferences and Value Discovery
This paper solves for equilibria of bargaining games with a seller and a buyer where there is no discounting between periods but players pay fixed bargaining costs for each period they bargain. In this setting, for the seller to cut prices gradually and effectively, the buyer needs to be risk averse. If players are not allowed to terminate bargaining in a finite game, the seller will raise the equilibrium prices. Allowing players to terminate bargaining causes the players to never make a deal with each other. Allowing the buyer to discover the value of the good along with bargaining termination enables the buyer to stop the seller from offering a high price and the seller to engage in price skimming by gradually lowering the price in equilibrium.
Copyright© 2025 The Author(s). This article is distributed under the terms of the license CC-BY 4.0., which permits any further distribution in any medium, provided the original work is properly cited.
Article’s history:
Received 25th of June, 2025; Received 29th of July, 2025; Accepted 12th of August, 2025; Available online: 30th of September, 2025. Published as article in the Volume XX, Fall, Issue 3(89), 2025.
Hwang, J. (2025). Seller-Buyer Bargaining Explained by Fixed Bargaining Costs, Risk Preferences and Value Discovery. Journal of Applied Economic Sciences, Volume XX, Fall, 3(89), 333 – 362. https://doi.org/10.57017/jaes.v20.3(89).01
Acknowledgments/Funding: Joongsan Hwang’s advisor, Professor Jin-Hyuk Kim at the University of Colorado Boulder, provided valuable advice for this paper.
Conflict of Interest Statement: The author declares that the research was conducted in the absence of any commercial or financial relationships that could be construed as a potential conflict of interest.
Data Availability Statement: This study does not analyse data. Data sharing is not applicable to this article.
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