How Well Does Bargaining Work in Consumer Markets? A Robust Bounds Approach

Abstract: This study provides a structural analysis of detailed, alternating-offer bargaining data from eBay, deriving bounds on buyers and sellers private value distributions and the gains from trade using a range of assumptions on behavior. These assumptions range from weak (assuming only that acceptance and rejection decisions are rational) to less weak (e.g., assuming that bargaining offers are weakly increasing in players’ private values). We estimate the bounds and show what they imply for consumer negotiation behavior and inefficient breakdown. For the median product, bargaining ends in impasse in 35% of negotiations even when the buyer values the good more than the seller.