Beyond Dividing the Pie: An Experimental Study on Bargaining over Multiple Issues

Abstract

Negotiations typically involve multiple issues: in addition to the transaction price, bargainers need to determine the scope of an agreement. We design a lab experiment to study behavior across different information and bargaining structures in a multi-issue context. Consistent with recent theoretical advances, we find that having information solely on the aggregate surplus of an agreement is a good substitute for being fully informed. Two components of the institution, free-form bargaining and bundling, play a crucial role for this result. We also study the causes of inefficiency which, depending on the bargaining setting, are incomplete information, aggressive bargaining stances, or delay due to haggling. Interestingly, improving information can have a detrimental effect on efficiency, in particular in large-surplus negotiations. Our findings have broad implications for the design of markets in which interaction occurs through bargaining.