Document Type

Article

Publication Date

1-3-2008

Publication Title

The RAND Journal of Economics

Abstract

A number of recent theoretical papers have shown that, for buyer‐size discounts to emerge in a bargaining model, the total surplus function over which parties bargain must have certain nonlinearities. We test the theory in an experimental setting in which a seller bargains with a number of buyers of different sizes. Nonlinearities in the surplus function are generated by varying the shape of the seller's cost function. Consistent with the theory, we find that quantity discounts emerge only in the case of increasing marginal cost, corresponding to a concave surplus function. We provide additional structural estimates to help identify the source of remaining discrepancies between experimental behavior and theoretical predictions (whether due to preferences for fairness or other factors such as computation errors).

DOI

10.1111/j.0741-6261.2007.00110.x

Comments

The attached article is the preprint posted on SSRN. The publisher's final pdf version cannot be shared due to publisher copyright restraints.

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