Bargaining and search with recall: A two-period model with complete information

Two standard results of previous bargaining models state that delay is generally not expected to occur under complete information, and bargaining outcome depends crucially on the bargainers’ intrinsic characteristics that determine their reservation prices, and, in general, bargainers with ‘better’ reservation prices tend to get better outcomes. This paper considers a bilateral bargaining problem with complete information in which one of the bargainers, the buyer, is allowed to search while bargaining. More importantly, the paper assumes that the buyer is allowed to recall past otuside offers. It finds that, quite contrary to the standard results of previous complete information bargaining models, complete information renders no guarantee for immediate resolution of bargaining, and the effect of changing the buyer’s search cost on each player’s bargaining outcome is unpredictable. The major driving force of these two results is the assumption that the buyer can recall past outside offers.