Confrontation Costs in Negotiations: Bargaining Under the Veil of a Screen

In negotiations the objectives of parties are generally in conflict. Facing this conflict can trigger negative emotions, such as nervousness, embarrassment and awkwardness, which I refer as confrontation costs. In this paper, I use a lab experiment to explore whether these costs exist and if so what their implications are. First, I show that a significant proportion of participants avoid bargaining even when it delivers higher payoffs. I find that the avoidance rate is 50% higher in face-to-face negotiations than in electronic negotiations. Second, after shutting down alternative channels, I find that the higher avoidance rate in person can be attributed to higher confrontation costs. Together, these two things make e-negotiations welfare-improving in my design, casting doubts on the general belief that face-to-face communication increases efficiency by fostering transactions. Finally, consistent with previous literature, I observe that women haggle less than men, and I find that confrontation costs can also account for this fact.