Information Design in the Holdup Problem

We analyze a bilateral trade model where the buyer chooses the distribution of her valuation for the good. The seller, after observing the buyer’s distribution but not the realized valuation, makes a take-it-or-leave-it offer. If distributions are costless, the price and the payoffs of both the buye...

Full description

Saved in:
Bibliographic Details
Published in:The Journal of political economy 2020-02, Vol.128 (2), p.681-709
Main Authors: Condorelli, Daniele, Szentes, Balázs
Format: Article
Language:English
Subjects:
Economic models
Equilibrium
Political economy
Valuation
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We analyze a bilateral trade model where the buyer chooses the distribution of her valuation for the good. The seller, after observing the buyer’s distribution but not the realized valuation, makes a take-it-or-leave-it offer. If distributions are costless, the price and the payoffs of both the buyer and the seller are shown to be 1/e in the unique equilibrium outcome. The buyer’s equilibrium distribution generates a unit-elastic demand, and trade is ex post efficient. These properties are shown to be preserved even when different distributions are differentially costly as long as the cost is monotone in the dispersion of the distribution.
ISSN:0022-3808
1537-534X
DOI:10.1086/704574