How communication improves efficiency in bargaining games

Kathleen Valley; Leigh Thompson; Robert Gibbons; Max H. Bazerman

doi:10.1006/game.2001.0855

How communication improves efficiency in bargaining games

Kathleen Valley^*, Leigh Thompson, Robert Gibbons, Max H. Bazerman

^*Corresponding author for this work

Management and Organizations

Research output: Contribution to journal › Article › peer-review

102 Scopus citations

Abstract

We study a double auction with two-sided private information and preplay communication, for which Myerson and Satterthwaite (1983, J. Econ. Theory 28, 265-281) showed that all equilibria are inefficient and the Chatterjee-Samuleson linear equilibrium is most efficient. Like several others, we find that players use communication to surpass equilibrium levels of efficiency, especially when the communication is face-to-face. Our main contribution is an analysis of how communication helps the parties achieve such high levels of efficiency. We find that when preplay communication is allowed, efficiency above equilibrium levels is a result of what we call "dyadic" strategies that allow the parties to coordinate on a single price that reflects both parties' valuations. Journal of Economic Literature Classification Numbers: C78, D82.

Original language	English (US)
Pages (from-to)	127-155
Number of pages	29
Journal	Games and Economic Behavior
Volume	38
Issue number	1
DOIs	https://doi.org/10.1006/game.2001.0855
State	Published - 2002

Funding

We study a double auction with two-sided private information and preplay communication, for which Myerson and Satterthwaite (1983, J. Econ. Theory 28, 265—281) showed that all equilibria are inefficient and the Chatterjee—Samuleson linear equilibrium is most efficient. Like several others, we find that players use communication to surpass equilibrium levels of efficiency, especially when the communication is face-to-face. Our main contribution is an analysis of how communication helps the parties achieve such high levels of efficiency. We find that when preplay communication is allowed, efficiency above equilibrium levels is a 1We are indebted to the Center for Advanced Study in the Behavioral Sciences for the opportunities it afforded us to spend time together and for fellowships to Gibbons and Thompson funded in part by National Science Foundation (NSF) grant SBR-90221192. Thompson also gratefully acknowledges NSF grants SES-9210298 and PYI-9157447. We thank the Harvard Business School for funding the experiment presented here, and seminar participants at Cal Tech, Cornell, Harvard, Northwestern, Pittsburgh, and Stanford for helpful comments. The reverse-alphabetical authorship order of this paper complements the alphabetical authorship order of our other papers.

Keywords

Coordination
Preplay communication
Private information games

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1006/game.2001.0855

Cite this

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title = "How communication improves efficiency in bargaining games",

abstract = "We study a double auction with two-sided private information and preplay communication, for which Myerson and Satterthwaite (1983, J. Econ. Theory 28, 265-281) showed that all equilibria are inefficient and the Chatterjee-Samuleson linear equilibrium is most efficient. Like several others, we find that players use communication to surpass equilibrium levels of efficiency, especially when the communication is face-to-face. Our main contribution is an analysis of how communication helps the parties achieve such high levels of efficiency. We find that when preplay communication is allowed, efficiency above equilibrium levels is a result of what we call {"}dyadic{"} strategies that allow the parties to coordinate on a single price that reflects both parties' valuations. Journal of Economic Literature Classification Numbers: C78, D82.",

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author = "Kathleen Valley and Leigh Thompson and Robert Gibbons and Bazerman, {Max H.}",

note = "Funding Information: We study a double auction with two-sided private information and preplay communication, for which Myerson and Satterthwaite (1983, J. Econ. Theory 28, 265—281) showed that all equilibria are inefficient and the Chatterjee—Samuleson linear equilibrium is most efficient. Like several others, we find that players use communication to surpass equilibrium levels of efficiency, especially when the communication is face-to-face. Our main contribution is an analysis of how communication helps the parties achieve such high levels of efficiency. We find that when preplay communication is allowed, efficiency above equilibrium levels is a 1We are indebted to the Center for Advanced Study in the Behavioral Sciences for the opportunities it afforded us to spend time together and for fellowships to Gibbons and Thompson funded in part by National Science Foundation (NSF) grant SBR-90221192. Thompson also gratefully acknowledges NSF grants SES-9210298 and PYI-9157447. We thank the Harvard Business School for funding the experiment presented here, and seminar participants at Cal Tech, Cornell, Harvard, Northwestern, Pittsburgh, and Stanford for helpful comments. The reverse-alphabetical authorship order of this paper complements the alphabetical authorship order of our other papers.",

year = "2002",

doi = "10.1006/game.2001.0855",

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AU - Thompson, Leigh

AU - Gibbons, Robert

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PY - 2002

Y1 - 2002

N2 - We study a double auction with two-sided private information and preplay communication, for which Myerson and Satterthwaite (1983, J. Econ. Theory 28, 265-281) showed that all equilibria are inefficient and the Chatterjee-Samuleson linear equilibrium is most efficient. Like several others, we find that players use communication to surpass equilibrium levels of efficiency, especially when the communication is face-to-face. Our main contribution is an analysis of how communication helps the parties achieve such high levels of efficiency. We find that when preplay communication is allowed, efficiency above equilibrium levels is a result of what we call "dyadic" strategies that allow the parties to coordinate on a single price that reflects both parties' valuations. Journal of Economic Literature Classification Numbers: C78, D82.

AB - We study a double auction with two-sided private information and preplay communication, for which Myerson and Satterthwaite (1983, J. Econ. Theory 28, 265-281) showed that all equilibria are inefficient and the Chatterjee-Samuleson linear equilibrium is most efficient. Like several others, we find that players use communication to surpass equilibrium levels of efficiency, especially when the communication is face-to-face. Our main contribution is an analysis of how communication helps the parties achieve such high levels of efficiency. We find that when preplay communication is allowed, efficiency above equilibrium levels is a result of what we call "dyadic" strategies that allow the parties to coordinate on a single price that reflects both parties' valuations. Journal of Economic Literature Classification Numbers: C78, D82.

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KW - Private information games

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How communication improves efficiency in bargaining games

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