Package deals in multi‐issue bilateral bargaining

Abstract

AbstractThis manuscript proposes a novel mechanism of multi‐issue bilateral bargaining under incomplete information. A single seller and single buyer negotiate the prices of multiple items by submitting offers and counteroffers in which the items are traded as a package deal. Trade occurs if the sum of the individual profits across all items is non‐negative. We experimentally compare a simultaneous protocol, where the two sets of price offers are submitted simultaneously, to a sequential protocol, where traders exchange offers and counteroffers with a deadline before submitting independently their final asks and bids. Our results show that the participants concluded more trades under the sequential protocol, that they shaved their price offers considerably, and that they often traded‐off price offers, sustaining negative profit on one or more of their items to increase their expected total profit.