Ultimatum Game Bargaining in a Partially Directed Search Market

Abstract We investigate a partially directed search and bargaining market with a laboratory experiment. First, sellers post intervals of possible surplus splits (i.e. the payoffs that would result from posting possible prices) that direct buyers to approach them. Second, after matching occurs, final surpluses are determined by ultimatum game bargaining. We investigate the interaction between bargaining and competition in the preliminary search stage, with a focus on how preferences for fair bargaining outcomes affect search. The main results confirm that behavior in the ultimatum game is consistent with preferences for fair outcomes, and the main effect on search is to drive up the posted buyer surplus lower bounds above the competitive equilibrium towards more equal surplus splits. Our main treatment variable is the number of buyers in the market, and when the number of buyers is increased, lower bounds and ultimatum offers to buyers decrease. This is consistent with fairness perceptions being influenced by competition.