Investigation of Information Search in Buyer-Supplier Negotiations

Abstract

While information sharing between firms has been the source of much investigation, information search has not. Yet, it would be unlikely for information sharing to take place without a prior search for information. Moreover, investigations of the role of information in negotiations have often only controlled for bargaining power and social preferences (prosocial and proself). Yet, social psychology shows that bargaining power and social preferences have a significant impact on negotiation behavior. Specifically, high bargaining power, which renders individuals less sensitive to their environment and hinders their perspective taking ability, might make buyers less likely to acquire detailed supplier cost information when market price is available. Additionally, proselfs, who care to maximize their own share of the surplus, might not believe that they need to obtain detailed supplier cost information. We use a quasi-experiment to test how buyers’ bargaining power and social preference affect buyers’ search for supplier cost information. We then examine how the information obtained influences expected trade outcomes. Consistent with our expectations, we find that low-power buyers and prosocial buyers choose to acquire more precise information than high-power buyers and proself buyers. In addition, this information choice affects buyers’ initial offers and expected trade outcomes indirectly through buyers' calculation of the supplier’s profit.

Keywords: information search, bargaining power, social preference, cost information

JEL Classification: M41, M19