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Power Asymmetry and Escalation in Bargaining

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  • Ulrike Vollstädt

    () (International Max Planck Research School on Adapting Behavior in a Fundamentally Uncertain World, University of Jena)

Abstract

Bargaining is prevalent in economic interactions. Under complete information, game theory predicts efficient bargaining outcomes (immediate acceptance of first offer) (see Rubinstein, 1982). However, continuous rejections of offers leading to inefficient delays (escalation) have regularly been found in previous bargaining experiments even under complete information (see Roth, 1995). I test experimentally (1) whether power asymmetry leads to more escalation in bargaining and (2) whether perspective-taking reduces escalation. I find that power asymmetry increases escalation, but that perspective-taking does not reduce escalation.

Suggested Citation

  • Ulrike Vollstädt, 2011. "Power Asymmetry and Escalation in Bargaining," Jena Economic Research Papers 2011-054, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2011-054
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    File URL: http://pubdb.wiwi.uni-jena.de/pdf/wp_2011_054.pdf
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    References listed on IDEAS

    as
    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. James C. Cox & Elinor Ostrom & James M. Walker, 2011. "Bosses and Kings: Asymmetric Power in Paired Common Pool and Public Good Games," Experimental Economics Center Working Paper Series 2011-06, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University, revised Aug 2012.
    3. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    4. Nikos Nikiforakis & Charles N. Noussair & Tom Wilkening, 2011. "Normative Conflict & Feuds: The Limits of Self-Enforcement," Department of Economics - Working Papers Series 1120, The University of Melbourne.
    5. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    two-person bargaining experiment; asymmetric power; escalation; perspective-taking;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other

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