While markets are often decentralized, in many other cases agents in one role can only negotiate with a proper subset of the agents in the complementary role. There may be proximity issues or restricted communication flows. For example, information may be transmitted only through word-of-mouth, as is often the case for job openings, business opportunities, and confidential transactions. Bargaining can be considered to occur over a network that summarizes the structure of linkages among people. We conduct an alternating-offer bargaining experiment using separate simple networks, which are then joined during the session by an additional link. The results diverge sharply depending on how this connection is made. Payoffs can be systematically affected even for agents who are not connected by the new link. We use a graph-theoretic analysis to show that any two-sided network can be decomposed into simple networks of three types, so that our result can be generalized to more complex bargaining environments. Participants appear to grasp the essential characteristics of the networks and we observe a rather consistently high level of bargaining efficiency.
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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number
492.
Find related papers by JEL classification: B49 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Other C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior D40 - Microeconomics - - Market Structure and Pricing - - - General
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Crawford, Vincent P & Rochford, Sharon C, 1986.
"Bargaining and Competition in Matching Markets,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(2), pages 329-48, June.
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