Competition modulates buyers’ reaction to sellers’ cheap talk

Rafiq Friperson, Hessel Oosterbeek and Bas van der Klaauw
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Rafiq Friperson: Vrije Universiteit Amsterdam
Hessel Oosterbeek: University of Amsterdam
Bas van der Klaauw: Vrije Universiteit Amsterdam

No 23-035/V, Tinbergen Institute Discussion Papers from Tinbergen Institute

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.

Keywords: Cheap-talk communication; efficiency; anchoring; price granulatiry; laboratory experiment (search for similar items in EconPapers)
JEL-codes: C72 C92 D91 (search for similar items in EconPapers)
Date: 2023-06-22
New Economics Papers: this item is included in nep-com, nep-exp, nep-gth and nep-ure
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