Bargaining with endogenous information

This paper analyses information acquisition in ultimatum bargaining with common values. Because of an endogenous lemons problem the equilibriumpayoffs of the agents are non-monotonic in the information cost. The mere possibility of information acquisition can cause no trade although the agents maintain symmetric information in equilibrium and the gain from trade is common knowledge. The agent responding to a takeit-or-leave-it offer may capture some or even the full trading surplus in a perfect Bayesian equilibrium. The implications for sequential bargaining are discussed. © 2007 Elsevier Inc. All rights reserved. JEL classification: C78; D82; D83