The effect of link costs on simple buyer-seller networks

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We examine experimentally how link costs affect the formation of links between a single seller and two potential buyers as well as the ensuing bargaining. Theory predicts that link costs lead to less competitive networks, with one link rather than two links, and that link costs do not affect the bargaining outcomes conditional on the network. We find support for the first but not the second prediction. 2-link networks form less frequently when there are link costs. Given that a 2-link network forms, however, a seller on average offers a smaller share of the pie to the buyers in the presence than in the absence of link costs. This impact of link costs can be explained by a disutility for (advantageous) inequality on the part of the seller.

Highlights
► We find that link costs lead to less competitive networks, as predicted. ► Network formation is determined by the short side of the market, which is not as predicted. ► We find that link costs affect bargaining outcomes (in competitive networks), which is not as predicted. ► The unpredicted results are in line with players having a preference for equality.
Original languageEnglish
Pages (from-to)229-246
JournalGames and Economic Behavior
Volume77
Issue number1
DOIs
Publication statusPublished - 2013

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Seller
Buyers
Costs
Network formation
Prediction
Equality

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title = "The effect of link costs on simple buyer-seller networks",
abstract = "We examine experimentally how link costs affect the formation of links between a single seller and two potential buyers as well as the ensuing bargaining. Theory predicts that link costs lead to less competitive networks, with one link rather than two links, and that link costs do not affect the bargaining outcomes conditional on the network. We find support for the first but not the second prediction. 2-link networks form less frequently when there are link costs. Given that a 2-link network forms, however, a seller on average offers a smaller share of the pie to the buyers in the presence than in the absence of link costs. This impact of link costs can be explained by a disutility for (advantageous) inequality on the part of the seller.Highlights► We find that link costs lead to less competitive networks, as predicted. ► Network formation is determined by the short side of the market, which is not as predicted. ► We find that link costs affect bargaining outcomes (in competitive networks), which is not as predicted. ► The unpredicted results are in line with players having a preference for equality.",
author = "G. Dogan and {van Assen}, M.A.L.M. and J.J.M. Potters",
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pages = "229--246",
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The effect of link costs on simple buyer-seller networks. / Dogan, G.; van Assen, M.A.L.M.; Potters, J.J.M.

In: Games and Economic Behavior, Vol. 77, No. 1, 2013, p. 229-246.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

T1 - The effect of link costs on simple buyer-seller networks

AU - Dogan, G.

AU - van Assen, M.A.L.M.

AU - Potters, J.J.M.

PY - 2013

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N2 - We examine experimentally how link costs affect the formation of links between a single seller and two potential buyers as well as the ensuing bargaining. Theory predicts that link costs lead to less competitive networks, with one link rather than two links, and that link costs do not affect the bargaining outcomes conditional on the network. We find support for the first but not the second prediction. 2-link networks form less frequently when there are link costs. Given that a 2-link network forms, however, a seller on average offers a smaller share of the pie to the buyers in the presence than in the absence of link costs. This impact of link costs can be explained by a disutility for (advantageous) inequality on the part of the seller.Highlights► We find that link costs lead to less competitive networks, as predicted. ► Network formation is determined by the short side of the market, which is not as predicted. ► We find that link costs affect bargaining outcomes (in competitive networks), which is not as predicted. ► The unpredicted results are in line with players having a preference for equality.

AB - We examine experimentally how link costs affect the formation of links between a single seller and two potential buyers as well as the ensuing bargaining. Theory predicts that link costs lead to less competitive networks, with one link rather than two links, and that link costs do not affect the bargaining outcomes conditional on the network. We find support for the first but not the second prediction. 2-link networks form less frequently when there are link costs. Given that a 2-link network forms, however, a seller on average offers a smaller share of the pie to the buyers in the presence than in the absence of link costs. This impact of link costs can be explained by a disutility for (advantageous) inequality on the part of the seller.Highlights► We find that link costs lead to less competitive networks, as predicted. ► Network formation is determined by the short side of the market, which is not as predicted. ► We find that link costs affect bargaining outcomes (in competitive networks), which is not as predicted. ► The unpredicted results are in line with players having a preference for equality.

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