Define the bayesian equilibrium

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Question: Consider the sale model (in which the seller makes all the offers). Suppose that the buyer has cost ε > 0 of starting to bargain, which must be paid before the seller makes the first offer. Show that in a perfect Bayesian equilibrium bargaining never takes place, i.e., no buyer pays the entry fee. (Hint: Consider the lowest type who enters the bargaining process.) Is this conclusion robust to the extensive form? (Hint: Suppose that the buyer makes an offer every other period, and take ε to 0.)

Reference no: EM131449936

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