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Opting Out: An Experimental Comparison of Bazaars versus High-Tech Markets

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  • Randolph Sloof

Abstract

Theory predicts that in alternating-offer bargaining the threat to delay agreement is effectively empty when the proposer can also opt out after a rejection (high-tech market), while this is not the case when only the responder can do so (bazaar). First proposers therefore have much more bargaining power in the former and get significantly more in equilibrium. This paper reports about an experiment designed to test these predictions. Our results confirm the theoretical predictions once we allow for the observed presence of a significant fraction of inequality-averse types in our subject pool.

Suggested Citation

  • Randolph Sloof, 2005. "Opting Out: An Experimental Comparison of Bazaars versus High-Tech Markets," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 161(4), pages 589-620, December.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200512)161:4_589:ooaeco_2.0.tx_2-x
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    References listed on IDEAS

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    1. Ernst Fehr & Simon Gächter, 2000. "Fairness and Retaliation: The Economics of Reciprocity," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 159-181, Summer.
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    3. Drew Fudenberg & Jean Tirole, 1983. "Sequential Bargaining with Incomplete Information," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 50(2), pages 221-247.
    4. Binmore, Ken & McCarthy, John & Ponti, Giovanni & Samuelson, Larry & Shaked, Avner, 2002. "A Backward Induction Experiment," Journal of Economic Theory, Elsevier, vol. 104(1), pages 48-88, May.
    5. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences with Simple Tests," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(3), pages 817-869.
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    Cited by:

    1. Sloof, Randolph, 2008. "Price-setting power vs. private information: An experimental evaluation of their impact on holdup," European Economic Review, Elsevier, vol. 52(3), pages 469-486, April.

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    More about this item

    JEL classification:

    • 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

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