Negotiations with Multidimensional Uncertainty and the Efficiency of Integrated Deals

58 Pages Posted: 30 Apr 2018 Last revised: 30 Nov 2023

See all articles by Matthew O. Jackson

Matthew O. Jackson

Stanford University - Department of Economics; Santa Fe Institute

Hugo Sonnenschein

Stanford University - Department of Economics

Yiqing Xing

Johns Hopkins University - Carey Business School

Christis Tombazos

Monash University - Department of Economics

Omar Al-Ubaydli

George Mason University - Department of Economics; Derasat; George Mason University - Mercatus Center; Economic Research Forum (ERF)

Date Written: April 6, 2023

Abstract

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

Jackson, Matthew O. and Sonnenschein, Hugo and Xing, Yiqing and Tombazos, Christis G. and Al-Ubaydli, Omar and Al-Ubaydli, Omar, Negotiations with Multidimensional Uncertainty and the Efficiency of Integrated Deals (April 6, 2023). Johns Hopkins Carey Business School Research Paper No. 21-14, Available at SSRN: https://ssrn.com/abstract=3153853 or http://dx.doi.org/10.2139/ssrn.3153853

Matthew O. Jackson (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
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Stanford, CA 94305-6072
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1-650-723-3544 (Phone)

HOME PAGE: http://www.stanford.edu/~jacksonm

Santa Fe Institute

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Hugo Sonnenschein

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

Yiqing Xing

Johns Hopkins University - Carey Business School ( email )

100 International Drive
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United States

HOME PAGE: http://yiqingxing.com

Christis G. Tombazos

Monash University - Department of Economics ( email )

Wellington Road
Clayton, Victoria 3
Australia

Omar Al-Ubaydli

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States
703-993-4538 (Phone)
703-993-1133 (Fax)

Derasat ( email )

Bahrain

George Mason University - Mercatus Center ( email )

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Arlington, VA 22201
United States

Economic Research Forum (ERF) ( email )

21 Al-Sad Al-Aaly St.
(P.O. Box: 12311)
Dokki, Cairo
Egypt

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