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Bargaining on networks: An experiment

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  • Gary Charness
  • Margarida Corominas

Abstract

While markets are often decentralized, in many other cases agents in one role can only negotiate with a proper subset of the agents in the complementary role. There may be proximity issues or restricted communication flows. For example, information may be transmitted only through word-of-mouth, as is often the case for job openings, business opportunities, and confidential transactions. Bargaining can be considered to occur over a network that summarizes the structure of linkages among people. We conduct an alternating-offer bargaining experiment using separate simple networks, which are then joined during the session by an additional link. The results diverge sharply depending on how this connection is made. Payoffs can be systematically affected even for agents who are not connected by the new link. We use a graph-theoretic analysis to show that any two-sided network can be decomposed into simple networks of three types, so that our result can be generalized to more complex bargaining environments. Participants appear to grasp the essential characteristics of the networks and we observe a rather consistently high level of bargaining efficiency.

Suggested Citation

  • Gary Charness & Margarida Corominas, 2000. "Bargaining on networks: An experiment," Economics Working Papers 492, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:492
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    File URL: https://econ-papers.upf.edu/papers/492.pdf
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    References listed on IDEAS

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    Cited by:

    1. Matthew O. Jackson, 2003. "A survey of models of network formation: Stability and efficiency," Working Papers 1161, California Institute of Technology, Division of the Humanities and Social Sciences.
    2. Matthew O. Jackson, 2002. "The Stability and Efficiency of Economic and Social Networks," Microeconomics 0211011, EconWPA.

    More about this item

    Keywords

    Bargaining; experiment; graph theory; network; Leex;

    JEL classification:

    • B49 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Other
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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