Deadlines in the market for lemons

Abstract

This paper studies finite-horizon bargaining games with interdependent values. A long-lived seller privately learns the quality of an indivisible good. Short-lived buyers make publicly observable offers to the seller successively until the good is sold. In the two-type case, the prices are always low and only the low-quality good is gradually traded in the unique equilibrium. With a continuum of types and linear values, we characterize asymptotic equilibrium outcomes as the time horizon increases to infinity. While the finite-horizon equilibrium dynamics can be different in these two cases, as the time horizon goes to infinity, the equilibrium outcomes in both settings converge to the bargaining impasse identified by Horner and Vieille (Econometrica 77: 29–69, 2009) in the infinite-horizon game.