Unity is Strength: An Experimental Study of Decentralized and Collective Bargaining

Abstract

We present an experiment where two players bargain with a third player. They can bargain either separately or form a joint venture to bargain collectively. Our theoretical benchmark solution predicts decentralized bargaining, as only one player has an interest in forming a joint venture. However, we observe a significant amount of collective bargaining. Collective bargaining, when compared with decentralized bargaining, has no significant effect on the payoffs of the players in the joint venture but reduces the payoff of the third player.

Keywords: Bargaining, joint venture, merger, experiments, equilibrium selection

JEL Classification: C78, C92