Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2023-06-22
Number: 23-035/V
Author-Name: Rafiq Friperson
Author-Workplace-Name: Vrije Universiteit Amsterdam
Author-Name: Hessel Oosterbeek
Author-Workplace-Name: University of Amsterdam
Author-Name: Bas van der Klaauw
Author-Workplace-Name: Vrije Universiteit Amsterdam
Title: Competition modulates buyers’ reaction to sellers’ cheap talk
Abstract: Sellers in real-estate markets, on internet platforms, in auction houses, and so forth,
routinely pose non-binding price requests. Using a laboratory experiment, we examine how
competition moderates the way such cheap-talk communication affects trade between buyers
and sellers. For bilateral trade, the literature has identified efficiency, anchoring, and granularity effects of cheap-talk communication on negotiation outcomes. Our results show that
most of these effects survive with competition, although some of them become weaker. Our
main findings are the following: (i) The ability of sellers to make non-binding price requests
has a positive effect on efficiency in that it helps trading partners close marginal deals both
in bilateral bargaining and in competition; (ii) Competition reduces the informativeness of
the price requests and weakens the anchoring effect of the level of the price request; (iii)
Sellers communicating more granular price requests attract more granular buyer bids; (iv)
The granularity of the seller’s price request does not impact the selling price.
Classification-JEL: C72, C92, D91
Keywords: Cheap-talk communication, efficiency, anchoring, price granulatiry, laboratory experiment
File-URL: https://papers.tinbergen.nl/23035.pdf
File-Format: application/pdf
File-Size: 3.308.359 bytes
Handle: RePEc:tin:wpaper:20230035