# What is the sale price of the home?

seller will sell his home for is Show more Consider the two-round home bargaining game. The minimum the seller will sell his home for is \$188000 and the maximum the buyer is willing to pay is \$200000. Both players know these two amounts and are bargaining over the difference M=\$12000. Assume the disagreement values are 0 for both players. Suppose the buyer moves first by making a proposal and the seller can accept or reject it. If the seller rejects the buyers proposal the seller gets to make a counter-proposal which the buyer can then accept or reject. The game is then over. Suppose that both players discount future income using a period discount factor of (delta=0.2) 1. Use rollback to find the equilibrium for this 2-round game. What is the sale price of the home? Which player buyer or seller gets the larger share of M? 2. Suppose the buyers discount factor was (delta^{b}=0.8) while the sellers discount factor remained at (delta^{s}=0.2) How does your answer to #1 change in this case? 3. Return to the case where both have the same discount factor of (delta=0.2) Suppose now that there is no limit to the number of alternating bargaining rounds and the buyer continues to move first. Use rollback reasoning to find the equilibrium price in this case. How does an unlimited number of bargaining rounds affect the share of the first mover-the buyer-relative to the 2- or 3-round case? What intuition can you offer for this difference? **Please show work** Show less

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