A buyer and a seller negotiating a sale price.  The buyer has some privately known value and the seller has some privately known cost and with positive probability there are gains from trade but with positive probability the seller’s cost exceeds the buyers value.  (So this is the Myerson-Satterthwaite setup.)

Do three treatments.

  1. The experimenter fixes a price in advance and the buyer and seller can only accept or reject that price.  Trade occurs if and only if they both accept.
  2. The seller makes a take it or leave it offer.
  3. The parties can freely negotiate and they trade if and only if they agree on a price.

Theoretically there is no clear ranking of these three mechanisms in terms of their efficiency (the total gains from trade realized.)  In practice the first mechanism clearly sacrifices some efficiency in return for simplicity and transparency.  If the price is set right the first mechanism would outperform the second in terms of efficiency due to a basic market power effect.  In principle the third treatment could allow the parties to find the most efficient mechanism, but it would also allow them to negotiate their way to something highly inefficient.

A conjecture would be that with a well-chosen price the first mechanism would be the most efficient in practice.   That would be an interesting finding.

A variation would be to do something similar but in a public goods setting.  We would again compare simple but rigid mechanisms with mechanisms that allow for more strategic behavior.  For example, a version of mechanism #1 would be one in which each individual was asked to contribute an equal share of the cost and the project succeeds if and only if all agree to their contributions.  Mechanism #3 would allow arbitrary negotation with the only requirement be that the total contribution exceeds the cost of the project.

In the public goods setting I would conjecture that the opposite force is at work.  The scope for additional strategizing (seeding, cajoling, guilt-tripping, etc) would improve efficiency.

Anybody know if anything like these experiments have been done?