IDEAS home Printed from https://ideas.repec.org/a/eee/gamebe/v56y2006i1p121-134.html
   My bibliography  Save this article

Markets versus negotiations: An experimental investigation

Author

Listed:
  • Kugler, Tamar
  • Neeman, Zvika
  • Vulkan, Nir

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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Kugler, Tamar & Neeman, Zvika & Vulkan, Nir, 2006. "Markets versus negotiations: An experimental investigation," Games and Economic Behavior, Elsevier, vol. 56(1), pages 121-134, July.
    • Handle: RePEc:eee:gamebe:v:56:y:2006:i:1:p:121-134
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0899-8256(05)00076-X
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Martin Brown & Armin Falk & Ernst Fehr, 2004. "Relational Contracts and the Nature of Market Interactions," Econometrica, Econometric Society, vol. 72(3), pages 747-780, May.
    2. Kirchsteiger, G. & Niederle, M. & Potters, J.J.M., 2001. "Public Versus Private Exchanges," Discussion Paper 2001-101, Tilburg University, Center for Economic Research.
    3. Glenn Ellison & Drew Fudenberg, 2003. "Knife-Edge or Plateau: When Do Market Models Tip?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(4), pages 1249-1278.
    4. Glenn Ellison & Drew Fudenberg & Markus Möbius, 2004. "Competing Auctions," Journal of the European Economic Association, MIT Press, vol. 2(1), pages 30-66, March.
    5. Charles R. Plott & Vernon L. Smith, 1978. "An Experimental Examination of Two Exchange Institutions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 45(1), pages 133-153.
    6. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
    7. 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.
    8. Fiona Scott Morton & Florian Zettelmeyer & Jorge Silva‐Risso, 2001. "Internet Car Retailing," Journal of Industrial Economics, Wiley Blackwell, vol. 49(4), pages 501-519, December.
    9. 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.
    10. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
    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. 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.
    13. 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.
    14. 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.
    15. Morton, Fiona Scott & Zettelmeyer, Florian & Silva-Risso, Jorge, 2001. "Internet Car Retailing," Journal of Industrial Economics, Wiley Blackwell, vol. 49(4), pages 501-519, December.
    16. Peters Michael, 1994. "Equilibrium Mechanisms in a Decentralized Market," Journal of Economic Theory, Elsevier, vol. 64(2), pages 390-423, December.
    17. Fiona Morton & Florian Zettelmeyer & Jorge Silva-Risso, 2003. "Consumer Information and Discrimination: Does the Internet Affect the Pricing of New Cars to Women and Minorities?," Quantitative Marketing and Economics (QME), Springer, vol. 1(1), pages 65-92, March.
    18. Jon Ketcham & Vernon L. Smith & Arlington W. Williams, 1984. "A Comparison of Posted-Offer and Double-Auction Pricing Institutions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(4), pages 595-614.
    19. Rich, Changhua Sun & Friedman, Daniel, 1998. "The Matching Market Institution: A Laboratory Investigation," American Economic Review, American Economic Association, vol. 88(5), pages 1311-1322, December.
    20. Campbell, Joseph & LaMaster, Shawn & Smith, Vernon L & Van Boening, Mark, 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.
    21. Nir Vulkan, 2003. "Introduction to The Economics of E-Commerce: A Strategic Guide to Understanding and Designing the Online Marketplace," Introductory Chapters, in: The Economics of E-Commerce: A Strategic Guide to Understanding and Designing the Online Marketplace, Princeton University Press.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jianjun Miao, 2006. "A search model of centralized and decentralized trade," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(1), pages 68-92, January.
    2. Rud, Olga A. & Rabanal, Jean Paul & Sharifova, Manizha, 2019. "An experiment on the efficiency of bilateral exchange under incomplete markets," Games and Economic Behavior, Elsevier, vol. 114(C), pages 253-267.
    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, March.
    4. Olga A. Rud & Jean Paul Rabanal, 2018. "Evolution of markets: a simulation with centralized, decentralized and posted offer formats," Journal of Evolutionary Economics, Springer, vol. 28(3), pages 667-689, August.
    5. Edoardo Gaffeo & Mauro Gallegati & Lucio Gobbi, 2022. "Endogenous clearinghouse formation in payment networks," Review of Evolutionary Political Economy, Springer, vol. 3(1), pages 109-136, April.
    6. Carlos Alós-Ferrer & Georg Kirchsteiger, 2015. "Learning and market clearing: theory and experiments," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 60(2), pages 203-241, October.
    7. Arthur Schram & Jordi Brandts & Klarita Gërxhani, 2007. "Information Networks and Worker Recruitment," Working Papers 316, Barcelona School of Economics.
    8. Carlos Alós-Ferrer & Johannes Buckenmaier & Georg Kirchsteiger, 2022. "Do traders learn to select efficient market institutions?," Experimental Economics, Springer;Economic Science Association, vol. 25(1), pages 203-228, February.
    9. Neeman Zvika & Vulkan Nir, 2010. "Markets versus Negotiations: The Predominance of Centralized Markets," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-30, February.
    10. Carlos Alós-Ferrer & Johannes Buckenmaier & Georg Kirchsteiger, 2020. "Do Traders Learn to Select Efficient Market Institutions?," ECON - Working Papers 364, Department of Economics - University of Zurich.
    11. Simon Loertscher, 2007. "Horizontally Differentiated Market Makers," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(4), pages 793-825, December.
    12. Simon Loertscher, 2008. "Market Making Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 56(2), pages 263-289, June.
    13. Jean Paul Rabanal & Olga A. Rabanal, 2015. "A Simulation on the Evolution of Markets: Call Market, Decentralized and Posted Offer," Working Papers 34, Peruvian Economic Association.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Glenn Ellison & Sara Fisher Ellison, 2005. "Lessons About Markets from the Internet," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 139-158, Spring.
    2. Ramnath K. Chellappa & Raymond G. Sin & S. Siddarth, 2011. "Price Formats as a Source of Price Dispersion: A Study of Online and Offline Prices in the Domestic U.S. Airline Markets," Information Systems Research, INFORMS, vol. 22(1), pages 83-98, March.
    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. Whaley, Christopher M., 2019. "Provider responses to online price transparency," Journal of Health Economics, Elsevier, vol. 66(C), pages 241-259.
    5. Arnold Michael A. & Pénard Thierry, 2007. "Bargaining and Fixed Price Offers: How Online Intermediaries are Changing New Car Transactions," Review of Network Economics, De Gruyter, vol. 6(2), pages 1-27, June.
    6. Kolko, Jed, 2010. "How broadband changes online and offline behaviors," Information Economics and Policy, Elsevier, vol. 22(2), pages 144-152, May.
    7. Kolko, Jed, 2006. "Why Should Governments Support Broadband Adoption?," MPRA Paper 3363, University Library of Munich, Germany.
    8. Meghan R. Busse & Duncan I. Simester & Florian Zettelmeyer, 2010. "“The Best Price You'll Ever Get”: The 2005 Employee Discount Pricing Promotions in the U.S. Automobile Industry," Marketing Science, INFORMS, vol. 29(2), pages 268-290, 03-04.
    9. Jorge Silva-Risso & Irina Ionova, 2008. "—A Nested Logit Model of Product and Transaction-Type Choice for Planning Automakers' Pricing and Promotions," Marketing Science, INFORMS, vol. 27(4), pages 545-566, 07-08.
    10. Ohjin Kwon & Anthony J. Dukes & S. Siddarth & Jorge M. Silva-Risso, 2015. "The Informational Role of Product Trade-Ins for Pricing Durable Goods," Journal of Industrial Economics, Wiley Blackwell, vol. 63(4), pages 736-762, December.
    11. Backus, Matthew R. & Podwol, Joseph Uri & Schneider, Henry S., 2014. "Search costs and equilibrium price dispersion in auction markets," European Economic Review, Elsevier, vol. 71(C), pages 173-192.
    12. Yuxin Chen & Sha Yang & Ying Zhao, 2008. "A Simultaneous Model of Consumer Brand Choice and Negotiated Price," Management Science, INFORMS, vol. 54(3), pages 538-549, March.
    13. Nejat Anbarci & Pedro Gomis-Porqueras & Marcus Pivato, 2018. "Evolutionary stability of bargaining and price posting: implications for formal and informal activities," Journal of Evolutionary Economics, Springer, vol. 28(2), pages 365-397, April.
    14. Byrne, David P. & Martin, Leslie A., 2021. "Consumer search and income inequality," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    15. Donna, Javier D. & Schenone, Pablo & Veramendi, Gregory F., 2020. "Networks, frictions, and price dispersion," Games and Economic Behavior, Elsevier, vol. 124(C), pages 406-431.
    16. 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.
    17. Anindya Ghose & Tridas Mukhopadhyay & Uday Rajan, 2007. "The Impact of Internet Referral Services on a Supply Chain," Information Systems Research, INFORMS, vol. 18(3), pages 300-319, September.
    18. Guofang Huang, 2020. "When to haggle, when to hold firm? Lessons from the used‐car retail market," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(3), pages 579-604, July.
    19. Jason Kuruzovich & Siva Viswanathan & Ritu Agarwal & Sanjay Gosain & Scott Weitzman, 2008. "Marketspace or Marketplace? Online Information Search and Channel Outcomes in Auto Retailing," Information Systems Research, INFORMS, vol. 19(2), pages 182-201, June.
    20. Anindya Ghose & Tridas Mukhopadhyay & Uday Rajan, 2003. "Strategic Benefits of Referral Services," Review of Marketing Science Working Papers 2-2-1022, Berkeley Electronic Press.

    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:gamebe:v:56:y:2006:i:1:p:121-134. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622836 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.