Bargaining With Two-Sided Incomplete Information: An Infinite Horizon Model With Alternating Offers

This paper examines an infinite horizon bargaining model, incorporating five features: two-sided incomplete information (with potentially information-revealing strategies), an infinite horizon, uncertainty concerning the potential gains from trade, an illumination of interesting qualitative bargaining issues, and plausible (free from arbitrarily specified out-of-equilibrium conjectures) equilibria. These features, motivated in the paper, have powerful implications. A Nash equilibrium exists, and is genetically both unique and sequential. Comparative static implications of variations in the game’s specifications are developed. We find that natural indications of bargaining strength emerge from the model, and establish the intuitive result that an increase in a player’s relative bargaining strength makes that player more likely to capture the gains from bargaining.