Direct Negotiations in Small and Medium Sized Matching Markets

Abstract

The number of agents normally plays an important role in markets, with larger markets implying less market power of single agents and thus more efficiency. This conjecture is investigated in the case of small and medium sized matching markets with negotiations over the distribution of profits. In addition to efficiency rates, possible differences between a 2x2 and 6x6 matching market are tested. A slight but not substantial increase in efficiency with market size is observed. In both markets the resulting allocations are driven by social motives and do not show differences in negotiated profits, number of equal splits, or proportion of core solutions. The observed results are independent of market size and thus seem not to be influenced by the number of possible partners. In both markets repeated direct one-on-one negotiations evoke strong emotions. JEL classification: C78, C91, D63, D86, J21