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Verifiable Offers and the Relationship Between Auctions and Multilateral Negotiations

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  • Charles J. Thomas
  • Bart J. Wilson

Abstract

We use the experimental method to compare second-price auctions with 'verifiable' multilateral negotiations in which the sole buyer can credibly reveal to sellers the best price offer he currently holds. Despite the two institutions' seeming equivalence, we find that prices are lower in verifiable multilateral negotiations than in second-price auctions. The difference occurs because low-cost sellers in negotiations often submit initial offers below the second-lowest cost. We also compare the two institutions to previously studied first-price auctions and multilateral negotiations with non-verifiable offers. Second-price auctions yield the highest prices, followed in order by verifiable negotiations, non-verifiable negotiations and first-price auctions. Copyright 2005 Royal Economic Society.

Suggested Citation

  • Charles J. Thomas & Bart J. Wilson, 2005. "Verifiable Offers and the Relationship Between Auctions and Multilateral Negotiations," Economic Journal, Royal Economic Society, vol. 115(506), pages 1016-1031, October.
    • Handle: RePEc:ecj:econjl:v:115:y:2005:i:506:p:1016-1031
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    Cited by:

    1. Bacchiega, Emanuele & Bonroy, Olivier & Petrakis, Emmanuel, 2020. "Auctions vs. negotiations in vertically related markets," Economics Letters, Elsevier, vol. 192(C).
    2. Thomas, Charles J., 2018. "An alternating-offers model of multilateral negotiations," Journal of Economic Behavior & Organization, Elsevier, vol. 149(C), pages 269-293.
    3. Koen V. Hindriks & Dmytro Tykhonov & Mathijs M. Weerdt, 2012. "Qualitative One-to-Many Multi-Issue Negotiation: Approximating the QVA," Group Decision and Negotiation, Springer, vol. 21(1), pages 49-77, January.
    4. Gregory E. Kersten & Tomasz Wachowicz & Margaret Kersten, 2016. "Competition, Transparency, and Reciprocity: A Comparative Study of Auctions and Negotiations," Group Decision and Negotiation, Springer, vol. 25(4), pages 693-722, July.
    5. Nicolas Fugger & Elena Katok & Achim Wambach, 2016. "Collusion in Dynamic Buyer-Determined Reverse Auctions," Management Science, INFORMS, vol. 62(2), pages 518-533, February.
    6. Burns, Nathaniel A. & Deck, Cary A. & Thomas, Charles J., 2023. "Experimental analysis of impatience in bilateral and multilateral negotiations," Journal of Economic Psychology, Elsevier, vol. 95(C).
    7. Charles J. Thomas & Bart J. Wilson, 2014. "Horizontal Product Differentiation in Auctions and Multilateral Negotiations," Economica, London School of Economics and Political Science, vol. 81(324), pages 768-787, October.
    8. Bo Yu & Gregory E. Kersten & Rustam Vahidov, 2022. "An experimental examination of credible information disclosure, perception of fairness, and intention to do business in online multi-bilateral negotiations," Electronic Markets, Springer;IIM University of St. Gallen, vol. 32(1), pages 217-237, March.

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