2022/01/05 by Harry Pei, Pei, Harry, Maren Vairo +1
Decision Sciences · Economics, Econometrics and Finance · Social Sciences · #Auction Theory and Applications #Economic Policies and Impacts #Experimental Behavioral Economics Studies #FOS: Economics and business #Theoretical Economics (econ.TH)
paper · pdf · doi:10.48550/arxiv.2201.01827
openalex publication_date 2022/01/05 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
A buyer and a seller bargain over the price of an object. Both players can build reputations for being obstinate by offering the same price over time. Before players bargain, the seller decides whether to adopt a new technology that can lower his cost of production. We show that even when the buyer cannot observe the seller's adoption decision, players' reputational incentives can lead to inefficient under-adoption and significant delays in reaching agreement, and that these inefficiencies arise in equilibrium if and only if the social benefit from adoption is large enough. Our result implies that an increase in the benefit from adoption may lower the probability of adoption and that the seller's opportunity to adopt a cost-saving technology may lower social welfare.