
Benjamin E. Hermalin
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subject to
For any x, if the buyer’s participation (offer-acceptance) constraint (6.2.1) did not
bind, then the seller could raise t slightly, keeping x fixed, and do better. Hence, in
equilibrium, (6.2.1) must bind. The seller’s choice of x therefore solves
Because (6.2.2) is welfare less a constant, the result follows.
The analysis when the buyer makes the offer is similar and, thus, omitted for the sake
of brevity. ■
What, in fact, is not general is the conclusion that giving the bargaining power to the
uninformed player (i.e., the seller) leads to inefficiency. To see this, return to the simple
example, maintaining all ...