In markets with asymmetric information, where equilibria are often inefficient, bargaining can help promote welfare. We design an experiment to examine the impact of competition and price transparency in such settings. Consistent with the theoretical predictions, we find that competition promotes efficiency if bargainers cannot observe each other's price offers. Contrary to the predictions, however, the efficiency-enhancing effect of competition persists even when offers are observable. We explore different behavioral explanations for the absence of a detrimental effect of price transparency. Remarkably, implementing the strategy method improves subjects' conditional reasoning, delivering the predicted loss in efficiency when offers are observable.
Bochet, Olivier, and Simon Siegenthaler.
"Competition and Price Transparency in the Market for Lemons: Experimental Evidence."
American Economic Journal: Microeconomics,
Bargaining Theory; Matching Theory
Asymmetric and Private Information; Mechanism Design
Information and Product Quality; Standardization and Compatibility