Transparent Dealing instead of Insider Haggling - Experimentally Analyzing an Institutional Choice for Repeated Trade

Daniela Di Cagno, Lorenzo Ferrari (), Werner Güth () and Vittorio Larocca ()
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Lorenzo Ferrari: LUISS University
Werner Güth: ‡Max Planck Institute for Collective Goods and LUISS University
Vittorio Larocca: LUISS University

No 523, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: In repeated commercial and organizational interactions, it is not unusual to observe privately informed parties enter long-term transparent deals with their counterparts rather than bargaining in each interaction period while retaining private information. To analyze such institutional choice, we set up an experiment where, in each of two rounds, buyers and sellers are constantly paired for six periods to trade a commodity whose value is privately known to the seller. In each period both parties are aware that there are gains from trade and of how their evaluations are proportionally linked and randomly generated. When choosing transparent dealing, the seller informs the buyer about which surplus share (s)he demands in all periods and, as a consequence, the commodity’s actual value in each period. When choosing the default institution, which we denote as insider haggling, the privately informed seller states a price and declares a cheap-talk commodity value in each period. Our results show that sellers opt far more often for transparent dealing, especially when female, although this is on average less profitable. Moreover, we find that the institutional choice is addictive for participants who are sellers in both rounds. Finally, transparent dealing is fairer and significantly enhances trade.

Keywords: Bargaining; Experiment; Complete and Incomplete Information (search for similar items in EconPapers)
JEL-codes: C73 C92 D82 D90 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2021-11-05, Revised 2023-02-18
New Economics Papers: this item is included in nep-cta, nep-exp, nep-gth and nep-ore
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