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  3. 2021
  4. Preliminary Program
  5. Empirical Studies of Negotiation and Bargaining Markets
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Empirical Studies of Negotiation and Bargaining Markets

Paper Session

Monday, Jan. 4, 2021 12:15 PM - 2:15 PM (EST)

Hosted By: Industrial Organization Society
  • Chair: Robin Lee, Harvard University

Mediation in Bargaining: Evidence From Large-Scale Field Data on Business-to-Business Negotiations

Brad Larsen
,
Stanford University
Carol Lu
,
Stanford University
Anthony Lee Zhang
,
University of Chicago

Abstract

We analyze a dataset containing hundreds of thousands of full alternating-offer, business-to-business negotiations in the wholesale used-car market, with each negotiation mediated (over the phone) by a third-party company. The data shows the identity of the employee mediating the negotiations, and these mediators are quasi-randomly assigned to the bargaining pair. We find mediator’s identities matter: high-performing
mediators are 23.23% more likely to close a deal than low-performers. Experience is correlated with better mediator performance. Male and female mediators perform equally well, but mediate differently: female mediators close deals faster and at prices more favorable to buyers. Good mediators appear to respond to long-term company incentives rather than short-term incentives to close a given deal and they can do even better at reaching agreement for threads with ex-ante lower probability of trade. We provide a new decomposition of mediator effectiveness, demonstrating that effective mediators improve bargaining outcomes by causing buyers and sellers to come to agreements faster, not by causing buyers and sellers to be more persistent. We also show that better mediators appear less reliant on exploiting certain types of behavioral biases.

Regulating Out-of-Network Hospital Payments: Disagreement Payoffs, Negotiated Prices, and Access

Elena Prager
,
Northwestern University
Nicholas Tilipman
,
University of Illinois-Chicago

Abstract

Recent policy proposals seek to regulate the prices that hospitals can levy for care delivered outside of a patient's insurance network. In this paper, we study the potential effects of such regulations on equilibrium in-network prices, network breadth, and hospital service line closures. The bulk of existing empirical work on insurer-provider negotiations assumes that no out-of-network transactions occur. We show that accounting for the presence of these transactions implies substantively larger hospital margins than those implied by canonical models from the literature. We operationalize this by proposing a novel, data-driven measure of off-contract prices paid by insurers to hospitals. Using our model, we conduct a series of counterfactuals to evaluate current policy proposals that would cap out-of-network reimbursements. In counterfactual simulations, reducing out-of-network reimbursements results in considerably lower negotiated prices with in-network hospitals, but at the cost of narrower networks and some outright service line closures.

Agency Pricing and Bargaining: Evidence from the E-Book Market

Babur De los Santos
,
Clemson University
Daniel O'Brien
,
Compass Lexecon
Matthijs Wildenbeest
,
Indiana University

Abstract

This paper examines the pricing implications of two types of vertical contracts under bargaining: wholesale contracts, where downstream firms set retail prices after negotiating wholesale prices, and agency contracts, where upstream firms set retail prices after negotiating sales royalties. We show that agency contracts can lead to higher or lower retail prices than wholesale contracts depending on the distribution of bargaining power. We propose a methodology to structurally estimate a model with either contract form under Nash-in-Nash bargaining. We apply our model to the e-book industry, which transitioned from wholesale to agency contracts after the expiration of a ban on agency contracting imposed in the antitrust settlement between U.S. Department of Justice and the major publishers. Using a unique dataset of e-book prices, we show that the transition to agency contracting increased Amazon prices substantially but had little effect on Barnes & Noble prices. We find that the assumption of Nash-in-Nash bargaining explains the data better than an assumption of take-it or leave-it input contracts. Counterfactual simulations indicate that reinstitution of most favored nation clauses, which were banned for five years in the 2012 settlement, would raise the prices of non-fiction books by nearly nine percent.

Bargaining and International Reference Pricing in the Pharmaceutical Industry

Pierre Dubois
,
Toulouse School of Economics
Ashvin Gandhi
,
University of California-Los Angeles
Shoshana Vasserman
,
Stanford University

Abstract

The United States spends twice as much per person on pharmaceuticals as European countries, in large part because prices are higher in the US. This fact has led policymakers in the US to consider legislation for price controls. This paper assesses the effects of a hypothetical US reference pricing policy that would cap prices in US markets by those offered in Canada. We estimate a structural model of demand and supply for pharmaceuticals in the US and Canada, in which Canadian prices are set through a negotiation process between pharmaceutical companies and the Canadian government. We then simulate the impacts of the counterfactual international reference pricing rule, allowing firms to internalize the cross-country impacts of their prices both when setting prices in the US and when negotiating prices in Canada. We find that such a policy results in a slight decrease in US prices and a substantial increase in Canadian prices. The magnitude of these effects depends on the particular structure of the policy. Overall, we find
modest consumer welfare gains in the US but substantial consumer welfare losses in Canada. Moreover, we find that pharmaceutical profits increase in net, suggesting that reference pricing of this form would constitute a net transfer from consumers to firms.
Discussant(s)
Matthew Grennan
,
University of Pennsylvania
Robin Lee
,
Harvard University
Fiona Scott Morton
,
Yale University
Martin Gaynor
,
Carnegie Mellon University
JEL Classifications
  • L0 - General
  • D4 - Market Structure, Pricing, and Design