Bargaining in the field

An important determinant of bargaining outcomes is the outside options available to individuals. In markets, outside options are largely determined by equilibrium forces outside the control of individual bargainers. In this chapter, we test bargaining theory using negotiations between a buyer and a seller in a field experiment in the taxi market in Peru. Consistent with the predictions from the theoretical model, we show more rejections and higher prices during peak commuting times when high-value buyers are looking for transportation. We also show that showing a willingness to compromise in the negotiation does alter the sequence of offers, however, the final transaction price is no different from showing no willingness to compromise.