The bargaining trap

I revisit the Rubinstein (1982) model for the classic problem of price haggling and show that bargaining can become a "trap," where equilibrium leaves one party strictly worse off than if no transaction took place (e.g., the equilibrium price exceeds a buyer's valuation). This arises when one party is impatient about capturing zero surplus (e.g., Rubinstein's example of fxed bargaining costs). Augmenting the protocol with costless unilateral exit options for responding bargainers generally removes the trap.(c) 2022 Elsevier Inc. All rights reserved.