Negotiations with Multidimensional Uncertainty and the Efficiency of Integrated Deals

Abstract

We study negotiations over multiple goods or dimensions when the maximum potential
surplus that can be reached is commonly known, but the bundle of goods or
decisions that realizes that surplus involves two-sided incomplete information. We use
theory and controlled laboratory experiments to show that in such settings efficient
trade is possible despite substantial asymmetric information. Moreover, we show that
achieving efficient outcomes depends on having sufficiently rich negotiation protocols:
if agents can offer to trade bundles of goods for overall bundle prices, then all equilibria
are efficient. By contrast, if agents can only negotiate over every good separately, each
with its own price, then all equilibria are inefficient. We extend the theory and experiments
to instances in which the surplus is either approximately known or unknown.

Keywords: Negotiations, Bargaining, Exchange, Trade, Multiple goods, Linking Efficiency

JEL Classification: A13, C72, C78, D47, D82