Ultimatum Game Bargaining in a Partially Directed Search Market

Abstract

We investigate a partially directed search market where buyers search for sellers and then final prices are determined by ultimatum game bargaining. In the search stage of this game, sellers post intervals of possible surplus splits to attract buyers and then buyers approach one seller from whom they attempt to purchase. Our main goal is to investigate the interaction between bargaining and competition in the preliminary search stage. The main results confirm that behavior in the ultimatum game is consistent with past findings (i.e., fairness matters), and the main effect on search is to drive up the posted lower bounds for buyer surplus above the competitive equilibrium (towards more equal splits). Our main treatment variable is the number of buyers in the market, and when the number of buyers is increased, lower bounds and ultimatum offers to buyers decrease. This is consistent with fairness perceptions being influenced by competition.