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Bargaining and Network Structure: An Experiment

  • Gary Charness
  • Margarida Corominas-Bosch & Guillaume R. Frechette

Abstract: 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 evidence of a form of social learning the shares (publicly) allocated to others in the past affect what one is willing to accept.

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Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 653.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nasm04:653
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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. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October.
  3. Falk, Armin & Kosfeld, Michael, 2003. "It's all about Connections: Evidence on Network Formation," IZA Discussion Papers 777, Institute for the Study of Labor (IZA).
  4. John Duffy & Nick Feltovich, 1997. "Does Observation of Others Affect Learning in Strategic Environments? An Experimental Study," Levine's Working Paper Archive 592, David K. Levine.
  5. A. Banerjee & Drew Fudenberg, 2010. "Word-of-Mouth Communication and Social Learning," Levine's Working Paper Archive 425, David K. Levine.
  6. Corominas-Bosch, Margarida, 2004. "Bargaining in a network of buyers and sellers," Journal of Economic Theory, Elsevier, vol. 115(1), pages 35-77, March.
  7. G. Ellison & D. Fudenberg, 2010. "Rules of Thumb for Social Learning," Levine's Working Paper Archive 435, David K. Levine.
  8. 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.
  9. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
  10. Bala, Venkatesh & Goyal, Sanjeev, 1998. "Learning from Neighbours," Review of Economic Studies, Wiley Blackwell, vol. 65(3), pages 595-621, July.
  11. Edward E. Glaeser & Bruce Sacerdote & Jose A. Scheinkman, 1995. "Crime and Social Interactions," Harvard Institute of Economic Research Working Papers 1738, Harvard - Institute of Economic Research.
  12. Gary Charness, 1998. "Bargaining efficiency and screening: An experimental investigation," Economics Working Papers 284, Department of Economics and Business, Universitat Pompeu Fabra.
  13. Jackson, Matthew O. & Kalai, Ehud, 1997. "Social Learning in Recurring Games," Games and Economic Behavior, Elsevier, vol. 21(1-2), pages 102-134, October.
  14. 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.
  15. Glenn Ellison, 2002. "Evolving Standards for Academic Publishing: A q-r Theory," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 994-1034, October.
  16. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-50, September.
  17. Michael Kosfeld, . "Network Experiments," IEW - Working Papers 152, Institute for Empirical Research in Economics - University of Zurich.
  18. 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.
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