Bazaar Versus High-Tech Markets. On the Relationship between Bargaining Power and the Timing of Opting Out Possibilities

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 this prediction. It is also studied whether the observed differences between the two bargaining protocols can be explained by the delay threat being effective only in the bazaar.

Keywords: bargaining, outside options, experiments

JEL Classification: C91, C78