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Threats and demonstrations of power: experimental results on bilateral bargaining

  • Noemí Navarro

    ()

    (Department of Economic Theory, Universidad de Málaga)

  • Róbert Veszteg

    ()

    (Institute of Social and Economic Research, Osaka University)

We test the empirical effectiveness of threats in equilibrating bargaining power in simple bilateral bargaining games. Our experimental design is based on the two-player versions of the multibidding game (Pérez-Castrillo and Wettstein, 2001) and the bid-and-propose game (Navarro and Perea, 2005) that build on the ultimatum game and balance parties' bargaining power by auctioning the role of the proposer in the first stage. We show that, while both mechanisms implement the fair split in their subgame-perfect Nash-equilibrium, they induce different results in the laboratory. Subjects do not react to threats that lie off the the equilibrium path in the expected way, even if these threats are theoretically credible as they belong to the subgame-perfect Nash equilibrium. In particular, it seems that subjects feel the need to show their bargaining power as if punishment that never happens could not constitute a credible threat.

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File URL: http://webdeptos.uma.es/THEconomica/malagawpseries/Papers/METCwp2008-11.pdf
File Function: First version, 2008
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Paper provided by Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center in its series Working Papers with number 2008-11.

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Length: 19 pages
Date of creation: Oct 2008
Date of revision:
Handle: RePEc:mal:wpaper:2008-11
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  1. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
  2. Forsythe Robert & Horowitz Joel L. & Savin N. E. & Sefton Martin, 1994. "Fairness in Simple Bargaining Experiments," Games and Economic Behavior, Elsevier, vol. 6(3), pages 347-369, May.
  3. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
  4. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 817-868.
  5. Card, David, 1990. "Strikes and Bargaining: A Survey of the Recent Empirical Literature," American Economic Review, American Economic Association, vol. 80(2), pages 410-15, May.
  6. David Pérez-Castrillo & David Wettstein, . "Bidding For The Surplus: A Non-Cooperative Approach To The Shapley Value," UFAE and IAE Working Papers 461.00, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  7. Carpenter, Jeffrey P., 2003. "Is fairness used instrumentally? Evidence from sequential bargaining," Journal of Economic Psychology, Elsevier, vol. 24(4), pages 467-489, August.
  8. Perea, Andrés & Navarro, Noemí, 2001. "Bargaining in networks and the myerson value," UC3M Working papers. Economics we016121, Universidad Carlos III de Madrid. Departamento de Economía.
  9. Noemí NAVARRO & Róbert VESZTEG, 2007. "Fair ultimatum: an experimental study of the Myerson value," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 07.05, Université de Lausanne, Faculté des HEC, DEEP.
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