SFB 303 Discussion Paper No. A - 303
Author: Schmidt, Klaus M.
Title: Commitment through Incomplete Information in a Simple Repeated
Abstract: The paper analyzes a finitely repeated bargaining game with asymmetric
information. It gives a precise characterization of the equilibrium path
and the equilibrium payoffs of all sequential equilibria satisfying a weak
Markov property. The method used allows for arbitrarily many different types
and provides an intuitive understanding of how "reputation" works. It is
shown that the seller can use the incomplete information about his costs to
credibly threaten never to accept a price lower than his highest possible
costs before the very end of the game. This result is independent of the
discount factors of the two players.
Keywords: Bargaining, Commitment, Repeated Games, Reputation
JEL-Classification-Number: 022, 026
Creation-Date: July 1990
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