Transparency of outside options in bargaining

This paper studies the effects of the transparency of an outside option in bilateral bargaining. A seller posts prices to screen a buyer over time, and the buyer may receive an outside option at a random time. We consider two information regimes, one in which the arrival of the outside option is public and one in which the arrival is private. The public arrival of the outside option works as a commitment device that forces the buyer to opt out immediately. The Coase conjecture holds in the unique equilibrium. In contrast, private information about the outside option leads to additional delay and multiplicity. The Coase conjecture fails in some equilibria. The buyer’s preference about transparency is time-inconsistent: Ex ante, she prefers public arrivals, but ex post she prefers not to disclose her outside option if it is private.