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Bargaining behavior when profits are unequal and losses are equal
Author(s) -
Felsenthal Dan S.
Publication year - 1977
Publication title -
behavioral science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.371
H-Index - 45
eISSN - 1099-1743
pISSN - 0005-7940
DOI - 10.1002/bs.3830220504
Subject(s) - bargaining power , profit (economics) , microeconomics , monopoly , offset (computer science) , economics , transaction cost , database transaction , affect (linguistics) , complete information , schedule , business , psychology , computer science , management , communication , programming language
This study explores the effect of information about other's payoffs as well as the power of a mediator in the most difficult bargaining situation: It is clear to both parties that no agreement could benefit them equally, but failing to agree will result in an equal loss. This situation was investigated in a bilateral monopoly setting where subjects, 172 male undergraduate students, were divided randomly into pairs. One subject in each pair assumed the role of a buyer and the other that of a seller, attempting to complete a transaction involving an imaginary product. Each of the alternative prices which could be agreed upon was associated with a differential profit, and failing to agree resulted in forfeiting a deposit. The amount of information about the other's profit schedule was found not to affect the probability of reaching an agreement. It did affect the magnitude of the difference between the parties' profits, given that an agreement was reached. An interesting paradox was found concerning the mediator. His availability induced subjects to employ him. Thereafter, they tended to reject his suggestions, incurring a risk that inclined to offset the advantage he seemed to offer. Despite the possible advantages of intransigence, no party used an intransigent strategy. Hence, no significant difference was found between the proportion of agreements favoring the initiator of the bargaining process and those favoring the party having the last clear chance. The few cases ending in disagreement were all a result of an operation of a random device simulating fatigue. The results are considered to have implications for a wide range of social situations involving both mutuality and opposition of interests.