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Bargaining and Network Structure: An Experiment

  • Charness, Gary B
  • Corominas-Bosch, Margarida
  • FRECHETTE, GUILLAUME

We consider bargaining in a bipartite network of buyers and sellers, who can only trade with the limited number of people with whom they are connected. Such networks could arise due to proximity issues or restricted communication flows, as with information transmission of job openings, business opportunities, and transactions not easily regulated by external authorities. We perform an experimental test of a graph-theoretic model that allows us to decompose any two-sided network into simple networks of three types, with unique predictions about equilibrium prices for the networks in our sessions. We begin with two separate simple networks, which are then joined by an additional link. Participants appear to quickly grasp important characteristics of the networks. The results diverge sharply depending on how this connection is made, typically conforming to the theoretical directional predictions. Payoffs can be systematically affected even for agents who are not connected by the new link. We find strong evidence that shares (publicly) allocated in the past to others in one’s current position substantially and significantly affect what one is willing to accept.

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Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number qt7v98682v.

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Date of creation: 20 Apr 2005
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Handle: RePEc:cdl:ucsbec:qt7v98682v
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  1. Douglas Gale, 2010. "Limit theorems for markets with sequential bargaining," Levine's Working Paper Archive 621, David K. Levine.
  2. Charness, Gary, 2000. "Bargaining efficiency and screening: an experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 42(3), pages 285-304, July.
  3. A. Banerjee & Drew Fudenberg, 2010. "Word-of-Mouth Communication and Social Learning," Levine's Working Paper Archive 425, David K. Levine.
  4. Ellison, Glenn & Fudenberg, Drew, 1993. "Rules of Thumb for Social Learning," Scholarly Articles 3196332, Harvard University Department of Economics.
  5. Michael Kosfeld, . "Network Experiments," IEW - Working Papers 152, Institute for Empirical Research in Economics - University of Zurich.
  6. Nick Feltovich & John Duffy, 1999. "Does observation of others affect learning in strategic environments? An experimental study," International Journal of Game Theory, Springer, vol. 28(1), pages 131-152.
  7. Matthew O. Jackson & Asher Wolinsky, 1995. "A Strategic Model of Social and Economic Networks," Discussion Papers 1098R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Glenn Ellison, 2000. "Evolving Standards for Academic Publishing: A q-r Theory," NBER Working Papers 7805, National Bureau of Economic Research, Inc.
  9. Jackson, Matthew O. & Kalai, Ehud, 1997. "Social Learning in Recurring Games," Games and Economic Behavior, Elsevier, vol. 21(1-2), pages 102-134, October.
  10. Falk, Armin & Kosfeld, Michael, 2003. "It's All About Connections: Evidence on Network Formation," CEPR Discussion Papers 3970, C.E.P.R. Discussion Papers.
  11. Glaeser, Edward L & Sacerdote, Bruce & Scheinkman, Jose A, 1996. "Crime and Social Interactions," The Quarterly Journal of Economics, MIT Press, vol. 111(2), pages 507-48, May.
  12. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
  13. Corominas-Bosch, Margarida, 2004. "Bargaining in a network of buyers and sellers," Journal of Economic Theory, Elsevier, vol. 115(1), pages 35-77, March.
  14. Oliver Kirchkamp & Rosemarie Nagel, 2001. "Repeated Game Strategies in Local and Group Prisoner's Dilemmas Experiments: First Results," Homo Oeconomicus, Institute of SocioEconomics, vol. 18, pages 319-335.
  15. Keser, Claudia & Ehrhart, Karl-Martin & Berninghaus, Siegfried K., 1998. "Coordination and local interaction: experimental evidence," Economics Letters, Elsevier, vol. 58(3), pages 269-275, March.
  16. Binmore, K & Shaked, A & Sutton, J, 1985. "Testing Noncooperative Bargaining Theory: A Preliminary Study," American Economic Review, American Economic Association, vol. 75(5), pages 1178-80, December.
  17. Bala, V. & Goyal, S., 1995. "Learning from Neighbors," Econometric Institute Research Papers EI 9549-/A, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  18. Arial Rubinstein & Asher Wolinsky, 1985. "Equilibrium in a Market with Sequential Bargaining," Levine's Working Paper Archive 623, David K. Levine.
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