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Matching markets with price bargaining

Published online by Cambridge University Press:  14 March 2025

Philipp E. Otto and
Friedel Bolle
Philipp E. Otto*
Affiliation:
Lehrstuhl Volkswirtschaftslehre, Insbesondere Wirtschaftstheorie (Mikroökonomie), Europa-Universität Viadrina Frankfurt (Oder), Postfach 1786, 15207 Frankfurt (Oder), Germany
Friedel Bolle
Affiliation:
Lehrstuhl Volkswirtschaftslehre, Insbesondere Wirtschaftstheorie (Mikroökonomie), Europa-Universität Viadrina Frankfurt (Oder), Postfach 1786, 15207 Frankfurt (Oder), Germany
*
e-mail: otto@europa-uni.de
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Abstract

The extant microeconomic literature on matching markets assumes ordinal preferences for matches, while bargaining within matches is mostly excluded. Central for this paper, however, is bargaining over joint profits from potential matches. We investigate, both theoretically and experimentally, a seemingly simple allocation task in a 2 × 2 market with repeated negotiations. When inefficiency is possible, about 1/3 of the complete matches are inefficient and, overall, more than 3/4 of the experimental allocations are unstable. These results strongly contradict existing bargaining theories requiring efficient matches. Even with regard to efficient matches, the tested theories perform poorly. Standard bargaining and behavioral concepts, such as Selten's (1972) Equal Division Core, are outperformed by the simplistic ɛ-Equal Split, i.e., an equal split of the joint profit plus/minus ɛ.

Keywords

Matching marketPrice negotiationOptimal allocationBargaining models

JEL classification

D40: GeneralC78: Bargaining Theory • Matching TheoryJ41: Labor ContractsC91: Laboratory, Individual BehaviorD82: Asymmetric and Private Information • Mechanism Design

Information

Type
Original Paper
Information
Experimental Economics , Volume 14 , Issue 3 , September 2011, pp. 322 - 348
Copyright
Copyright © 2011 Economic Science Association

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Footnotes

Electronic supplementary material The online version of this article (doi: 10.1007/s10683-010-9270-4) contains supplementary material, which is available to authorized users.

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