The culture of private negotiation: Endogenous price anchors in simple bilateral bargaining experiments

Abstract

Using bilateral bargaining data from laboratory experimental markets, this paper demonstrates how common knowledge about price averages from past bargains impacts current negotiated prices. This common information creates an endogenous and declining anchor for bargaining agents. The culture of private negotiation leads parties to agreements below the anchor. Currently negotiated prices below the anchor cause reported averages in the next period to fall. The relation between the endogenous anchor and the negotiating culture leads to a downward drift in negotiated prices. Through at least 20 periods of bargaining, relative earnings are distributed toward buyers and away from sellers.