Interactive Communication in Bilateral Trade
summary
Model where seller and buyer alternately send verifiable signals updating each other’s priors and seller sets a price at the end. Main theorem claims any protocol with finite message complexity yields an efficient allocation so total surplus is maximized. Conjecture: every finite‑support instance has finite message complexity. Fully characterize the case where Bob’s type support is two and show complexity ≤2. Construct a Spy Game with gradual disclosure that produces very long equilibrium communication.
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