Buying a pig when both buyer and seller are in pokes

This paper considers the situation of a foreign company buying an enterprise in an Eastern European country. Since the enterprise has no record in a market economy, neither buyer or seller knows what value should be placed on it. In addition, very often the physical assets of the enterprise have little value, so the purchasing firm is actually buying a license to engage in a particular line of business and expects some subsidy or protection while the enterprise is being renovated and is entering the market. Bargaining postulates are developed and a simple bargaining model is evolved which show conditions under which bargaining will succeed. The role of the proportion of equity purchased and the effect of subsidies are considered.