Strategic alliances in a veto game: An experimental study

Abstract

In a veto game, we investigate the effects of “buyout” which allows non-veto players strategically form an intermediate coalition. First, our experimental findings show that the proportion of intermediate coalition formation is much lower than predicted by theory, regardless of the relative negotiation power between veto and non-veto players. Second, allowing coalition formation among non-veto players does not affect the surplus distribution between veto and non-veto players, which diverges from core allocations. These findings contrast to the literature, which views the ability to form an intermediate coalition as a valuable asset for non-veto players in increasing their bargaining power.