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What Price Fairness? A Bargaining Study

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Author Info

  • Rami Zwick

    (Department of Marketing, The Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong)

  • Xiao-Ping Chen

    (Department of Management, Indiana University, 1309 E. Tenth Street, Bloomington, Indiana 47405-1701)

Abstract

Our study concerns bargaining behavior in situations where one party is in a stronger position than the other. We investigate both the tradeoff the favored party makes between pursuing his strategic advantage and giving weight to other players' concern for fairness, and the tradeoff the disadvantaged player makes between pursuing a fair outcome from a disadvantaged position and the cost of that pursuit. In particular, we hypothesize that the degree to which strategically strong players attempt to exploit their strategic advantage depends on their potential costs for doing so. Similarly, the degree to which weak players persist in seeking "fairness" is also a function of how much it (potentially) costs them to do so. Students negotiated in pairs over the division of $HK50 using a finite horizon, fixed-cost (per rejection) alternating offer rule. Each pair consisted of a high-cost and a low-cost bargainer. In accordance with the hypothesis, the willingness of the high-cost bargainers to demand fairness and to persist in their demands was a function of how much it cost them to do so, and the degree to which the low-cost bargainers attempted to exploit their strategic advantage depended on their own cost of rejection. We conclude that "fairness" has a price such that the higher its price, the lower the "demand" for it. This suggests that demands for fairness are subject to cost-benefit evaluation, are in this sense deliberate, and are well thought out.

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File URL: http://dx.doi.org/10.1287/mnsc.45.6.804
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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 45 (1999)
Issue (Month): 6 (June)
Pages: 804-823

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Handle: RePEc:inm:ormnsc:v:45:y:1999:i:6:p:804-823

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Keywords: fairness; punishment; bargaining; fixed-costs;

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References

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Citations

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Cited by:
  1. Gächter, Simon & von Krogh, Georg & Haefliger, Stefan, 2010. "Initiating private-collective innovation: The fragility of knowledge sharing," Research Policy, Elsevier, vol. 39(7), pages 893-906, September.
  2. Pat Auger & Timothy Devinney, 2007. "Do What Consumers Say Matter? The Misalignment of Preferences with Unconstrained Ethical Intentions," Journal of Business Ethics, Springer, vol. 76(4), pages 361-383, December.
  3. Carpenter, Jeffrey P., 2007. "The demand for punishment," Journal of Economic Behavior & Organization, Elsevier, vol. 62(4), pages 522-542, April.
  4. Simon Gaechter & Georg von Krogh & Stefan Haefliger, 2006. "Private-Collective Innovation and the Fragility of Knowledge Sharing," Discussion Papers 2006-21, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  5. Andreas Nicklisch, 2004. "Express Yourself: The Price of Fairness in a Simple Distribution Game," Papers on Strategic Interaction 2004-36, Max Planck Institute of Economics, Strategic Interaction Group.
  6. Stahl, Dale O. & Haruvy, Ernan, 2008. "Subgame perfection in ultimatum bargaining trees," Games and Economic Behavior, Elsevier, vol. 63(1), pages 292-307, May.

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