Initiating Bargaining

Abstract

We study whether the success of bargaining and the agreed upon terms depend on the characteristics of the person who initiates negotiations ("the initiator"). We approach this question in the context of high-stakes online poker tournaments, in which participants often negotiate a division of the prize money rather than risk playing until the end. Although initiators typically are in a worse than average position and are less well known, negotiations initiated by better known and better performing agents are more likely to lead to an agreement. This would suggest that gains to trade depend on who the initiator is, but, surprisingly, initiating bargaining does not affect the initiator's payoff in a completed deal. Additionally, we find strong evidence in support of Cramton, Gibbons, and Klemperer (1987), who argue that for bargaining to succeed the parties' stakes in an enterprise must be close to equal.