Beyond Dividing the Pie: Multi-Issue Bargaining in the Laboratory

Abstract

We design a laboratory experiment to study bargaining behaviour when negotiations involve multiple issues. Parties must discover both trading prices and agreement scopes, giving rise to unexplored information structures and bargaining strategies. We find that bargainers often trade the efficient set of issues despite lacking information about individual aspects. However, beneficial agreements critically hinge on integrated negotiations that allow deals on bundles of issues. Moreover, access to more information boosts agreement rates in small-surplus negotiations but can also backfire as it triggers increased risk-taking and conflicting fairness preferences in large-surplus negotiations. Finally, successful negotiations display a specific bargaining convention that emerges endogenously. It involves alternating offers that meet the other side's most recent demand halfway.

Keywords: Alternating offers, Asymmetric information, Bundling, Negotiation scope, Value creation