Matching markets with price bargaining |
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Authors: | Philipp E Otto Friedel Bolle |
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Institution: | 1.Lehrstuhl Volkswirtschaftslehre, Insbesondere Wirtschaftstheorie (Mikro?konomie),Europa-Universit?t Viadrina Frankfurt (Oder),Frankfurt (Oder),Germany |
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Abstract: | The extant microeconomic literature on matching markets assumes ordinal preferences for matches, while bargaining within matches
is mostly excluded. Central for this paper, however, is bargaining over joint profits from potential matches. We investigate,
both theoretically and experimentally, a seemingly simple allocation task in a 2×2 market with repeated negotiations. When
inefficiency is possible, about 1/3 of the complete matches are inefficient and, overall, more than 3/4 of the experimental
allocations are unstable. These results strongly contradict existing bargaining theories requiring efficient matches. Even
with regard to efficient matches, the tested theories perform poorly. Standard bargaining and behavioral concepts, such as
Selten’s (1972) Equal Division Core, are outperformed by the simplistic ε-Equal Split, i.e., an equal split of the joint profit plus/minus ε. |
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