Negotiations with Multidimensional Uncertainty and the Efficiency of Integrated Deals
58 Pages Posted: 30 Apr 2018 Last revised: 30 Nov 2023
Date Written: April 6, 2023
We study negotiations over multiple goods or dimensions that can be bundled together. We concentrate on settings in which the maximum potential surplus that can be reached is commonly known, but the bundle of goods or decisions that realizes that surplus is unknown and 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 also show how the theory and experiments extend when the surplus is either approximately known or unknown.
Keywords: Negotiations, Bargaining, Exchange, Trade, Multiple goods, Linking, Efficiency
JEL Classification: A13, C72, C78, D47, D82, C92
Suggested Citation: Suggested Citation