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Title: Bargaining and search : an experimental study
Authors: Zwick, Rami
Chyi Lee, Ching
Keywords: Price
Bargaining theory
Issue Date: Nov-1996
Series/Report no.: Marketing Working Paper Series ; MKTG 96.083
Abstract: We study experimentally two versions of a model in which a buyer and a seller bargain over the price of a good; however, the buyer can choose to leave the negotiation table to search for other alternatives. Under one version, if the buyer chooses to search for a better price, the opportunity to purchase the good at the stated price is gone. Under the second version, the seller guarantees the same price if the buyer chooses to return immediately after a search (presumably because a better price would not be found). In both cases, the buyer has a fairly good idea about what to expect from the search, but because the search is costly, he has to weigh the potential benefits of the search against its cost. It turns out (theoretically) that adding search to simple bargaining mechanism eliminates some unsatisfactory features of bargaining theory. Our experiment reveals that only some of the behavioral regularities can be accounted for by the model. In line with recent developments in behavioral decision theory and game theory, which assume bounded rationality and preferences over the relative division of surplus, we find that subjects follow simple rules of thumb and distributional norms in choosing strategies, reflected in the behavioral consistencies observed in this study.
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