Markets Versus Negotiations: An Experimental Investigation

Authors: 
Tamar Kugler, Zvika Neeman, Nir Vulkan
Abstract: 

We consider the consequences of competition between two types of experimental exchange mechanisms, a “decentralized bargaining” market, and a “centralized” market. The experiment demonstrates that decentralized bargaining is subject to a process of unraveling in which relatively weak traders (buyers with high willingness to pay and sellers with low costs) continuously find trading in the centralized market more attractive until almost no opportunities for mutually beneficial trade remain outside the centralized marketplace.

Date: 
June, 2003
Published in: 
Economic Behavior 56 (2006), 121-134
Number: 
319