MARKOV BARGAINING GAMES

I consider an alternating offer bargaining game which is played by a r isk neutral buyer and seller, where the value of the good to be traded follows a Markov process. For these games the existence of a perfect equilibrium is proved and the set of equilibrium payoffs and strategie s are characterised. The main results are (a) if the buyer is less pat ient than the seller, then there will be delays in the players reachin g an agreement, the buyer is forced into a suboptimal consumption poli cy and the equilibrium is ex-ante inefficient, and (b) if the buyer is more patient than the seller, then there is a unique and efficient eq uilibrium where agreement is immediate. (C) 1998 Elsevier Science B.V. All rights reserved.