The effect of link costs on simple buyer–seller networks
AbstractWe examine experimentally how link costs affect the formation of links between a single seller and two potential buyers as well as the ensuing bargaining. Theory predicts that link costs lead to less competitive networks, with one link rather than two links, and that link costs do not affect the bargaining outcomes conditional on the network. We find support for the first but not the second prediction. 2-link networks form less frequently when there are link costs. Given that a 2-link network forms, however, a seller on average offers a smaller share of the pie to the buyers in the presence than in the absence of link costs. This impact of link costs can be explained by a disutility for (advantageous) inequality on the part of the seller.
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Bibliographic InfoArticle provided by Elsevier in its journal Games and Economic Behavior.
Volume (Year): 77 (2013)
Issue (Month): 1 ()
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Web page: http://www.elsevier.com/locate/inca/622836
Experiments; Bargaining; Networks; Competition; Sunk costs; Inequality aversion;
Find related papers by JEL classification:
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- C9 - Mathematical and Quantitative Methods - - Design of Experiments
- D4 - Microeconomics - - Market Structure and Pricing
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
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