July 19, 2012
Abstract
We study dynamic bargaining with asymmetric information and interdependent
values. We base our analysis on the equilibria characterized by Deneckere
and Liang (2006) for the gap case. We show that as the gap between
the cost and value of the weakest type shrinks to zero, the continuous time
limit of equilibria changes dramatically from rare bursts of trade with long periods
of inactivity to a smooth screening over time. Moreover, the price path
in the double limit is independent of the shape of the distribution of values.
Although the equilibrium exhibits delay even as the uninformed agent’s ability
to commit to prices disappears, that agent fails to capture any rents.