Does Resorting to Online Dispute Resolution Promote Agreements ? Experimental Evidence

GATE Working Paper No. 04-01

33 Pages Posted: 15 Jun 2006 Last revised: 22 Jun 2014

See all articles by Yannick Gabuthy

Yannick Gabuthy

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE)

Nadege Marchand

Groupe d' Analyse et de Theorie Economique (GATE)

Date Written: April 1, 2004

Abstract

This paper presents the results of an experiment performed to test the properties of an innovative bargaining mechanism (called automated negotiation) used to resolve disputes arising from Internetbased transactions. Automated negotiation is an online sealed-bid process in which an automated algorithm evaluates bids from the parties and settles the case if the offers are within a prescribed range. The observed individual behavior, based on 40 rounds of bargaining, is shown to be drastically affected by the design of automated negotiation. The settlement rule encourages disputants to behave strategically by adopting aggressive bargaining positions, which implies that the mechanism is not able to promote agreements and generate efficiency. This conclusion is consistent with the experimental results on arbitration and the well-known chilling effect: Automated negotiation tends to "chill" bargaining as it creates incentives for individuals to misrepresent their true valuations and discourage them to converge on their own. However, this perverse effect induced by the settlement rule depends strongly on the conflict situation. When the threat that a disagreement occurs is more credible, the strategic effect is reduced since defendants are more interested in maximizing the efficiency of a settlement than their own expected profit.

Keywords: arbitration, bargaining, electronic commerce, experimental economics, online dispute

JEL Classification: C78, C91, D44,D74

Suggested Citation

Gabuthy, Yannick and Marchand, Nadege, Does Resorting to Online Dispute Resolution Promote Agreements ? Experimental Evidence (April 1, 2004). GATE Working Paper No. 04-01. Available at SSRN: https://ssrn.com/abstract=908224 or http://dx.doi.org/10.2139/ssrn.908224

Yannick Gabuthy (Contact Author)

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE) ( email )

93, chemin des Mouilles
Ecully, 69130
France

Nadege Marchand

Groupe d' Analyse et de Theorie Economique (GATE) ( email )

CNRS UMR 5824
93, chemin des Mouilles - B.P.167
69130 Ecully cedex
France

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