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Markets Versus Negotiations: An Experimental Investigation

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  • Tamar Kugler

    ()

  • Zvika Neeman

    ()

  • Nir Vulkan

    ()

Abstract

We consider the consequences of competition between two types of experimental exchange mechanisms, a “decentralized bargaining” market, and a “centralized” market. The experiment demonstrates that decentralized bargaining is subject to a process of unraveling in which relatively weak traders (buyers with high willingness to pay and sellers with low costs) continuously find trading in the centralized market more attractive until almost no opportunities for mutually beneficial trade remain outside the centralized marketplace.

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File URL: http://ratio.huji.ac.il/sites/default/files/publications/dp319.pdf
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Bibliographic Info

Paper provided by The Center for the Study of Rationality, Hebrew University, Jerusalem in its series Discussion Paper Series with number dp319.

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Length: 19 pages
Date of creation: Jun 2003
Date of revision:
Publication status: Published in Economic Behavior, 2006, vol. 56, pp. 121-134.
Handle: RePEc:huj:dispap:dp319

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Keywords: centralized markets; decentralized markets; decentralized bargaining; market design; market formation;

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References

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  1. Morton, Fiona Scott & Zettelmeyer, Florian & Silva-Risso, Jorge, 2001. "Internet Car Retailing," Journal of Industrial Economics, Wiley Blackwell, vol. 49(4), pages 501-19, December.
  2. Martin Brown & Armin Falk & Ernst Fehr, 2004. "Relational Contracts and the Nature of Market Interactions," Econometrica, Econometric Society, vol. 72(3), pages 747-780, 05.
  3. Fiona Scott Morton & Florian Zettelmeyer & Jorge Silva-Risso, 2001. "Consumer Information and Price Discrimination: Does the Internet Affect the Pricing of New Cars to Women and Minorities?," NBER Working Papers 8668, National Bureau of Economic Research, Inc.
  4. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
  5. Glenn Ellison & Drew Fudenberg, 2003. "Knife-Edge or Plateau: When do Market Models Tip?," Levine's Working Paper Archive 506439000000000098, David K. Levine.
  6. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
  7. Campbell, Joseph, et al, 1991. "Off-Floor Trading, Disintegration, and the Bid-Ask Spread in Experimental Markets," The Journal of Business, University of Chicago Press, vol. 64(4), pages 495-522, October.
  8. Nir Vulkan, 2003. "Introduction to The Economics of E-Commerce: A Strategic Guide to Understanding and Designing the Online Marketplace
    [The Economics of E-Commerce: A Strategic Guide to Understanding and Designing t
    ," Introductory Chapters, Princeton University Press.
  9. Fiona Scott Morton & Florian Zettelmeyer & Jorge Silva-Risso, 2001. "Internet Car Retailing," NBER Chapters, in: E-commerce, pages 501-519 National Bureau of Economic Research, Inc.
  10. Kirchsteiger, G. & Niederle, M. & Potters, J.J.M., 2001. "Public Versus Private Exchanges," Discussion Paper 2001-101, Tilburg University, Center for Economic Research.
  11. Florian Zettelmeyer & Fiona Scott Morton & Jorge Silva-Risso, 2001. "Cowboys or Cowards: Why are Internet Car Prices Lower?," NBER Working Papers 8667, National Bureau of Economic Research, Inc.
  12. Ketcham, Jon & Smith, Vernon L & Williams, Arlington W, 1984. "A Comparison of Posted-Offer and Double-Auction Pricing Institutions," Review of Economic Studies, Wiley Blackwell, vol. 51(4), pages 595-614, October.
  13. Florian Zettelmeyer & Fiona M. Scott Morton & Jorge Silva-Risso, 2001. "Cowboys or Cowards: Why are Internet Car Prices Lower?," Yale School of Management Working Papers ysm241, Yale School of Management.
  14. Cason, Timothy N. & Friedman, Daniel & Milam, Garrett H., 2003. "Bargaining versus posted price competition in customer markets," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 223-251, February.
  15. Glenn Ellison & Drew Fudenberg & Markus Möbius, 2004. "Competing Auctions," Journal of the European Economic Association, MIT Press, vol. 2(1), pages 30-66, 03.
  16. Florian Zettelmeyer & Fiona M. Scott Morton & Jorge Silva-Risso, 2001. "Consumer Information and Price Discrimination: Does the Internet Affect the Pricing of New Cars to Women and Minorities?," Yale School of Management Working Papers ysm240, Yale School of Management.
  17. Plott, Charles R & Smith, Vernon L, 1978. "An Experimental Examination of Two Exchange Institutions," Review of Economic Studies, Wiley Blackwell, vol. 45(1), pages 133-53, February.
  18. Rich, Changhua Sun & Friedman, Daniel, 1998. "The Matching Market Institution: A Laboratory Investigation," American Economic Review, American Economic Association, vol. 88(5), pages 1311-22, December.
  19. Peters Michael, 1994. "Equilibrium Mechanisms in a Decentralized Market," Journal of Economic Theory, Elsevier, vol. 64(2), pages 390-423, December.
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Citations

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Cited by:
  1. Jordi Brandts & Arthur Schram & Klarita Gërxhani, 2007. "Information Networks and Worker Recruitment," UFAE and IAE Working Papers 707.07, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  2. Jianjun Miao, 2004. "A Search Model of Centralized and Decentralized Trade," Microeconomics 0410003, EconWPA.
  3. Carlos Alós-Ferrer & Georg Kirchsteiger & Markus Walzl, 2010. "On the Evolution of Market Institutions: The Platform Design Paradox," Economic Journal, Royal Economic Society, vol. 120(543), pages 215-243, 03.
  4. Alós-Ferrer, Carlos & Kirchsteiger, Georg & Walzl, Markus, 2006. "On the Evolution of Trading Institutions: The Platform Design Paradox," Research Memorandum 004, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).

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