Price Competition and Bargaining: An Experimental Study Based on Hotelling’s Model

Participants engage in a lab-based market game where they are assigned to groups of four: two sellers and two buyers. Each group participates in two treatment conditions designed to simulate different market pricing mechanisms:

1.Posted-Price Condition:
Sellers set prices before any interaction. Buyers observe both posted prices and their transportation costs, and then decide which seller to purchase from. No negotiation is allowed. Transactions occur at the posted price if buyers choose to purchase.

2.Bargaining Condition:
Buyers select a seller to visit and engage in a one-on-one price negotiation. The negotiation has a time limit. If no agreement is reached, the buyer can exit and visit the other seller, incurring additional transportation costs. Final transaction prices are determined through bilateral bargaining.

Each group completes 4 periods under each treatment. In each period, buyer transportation costs vary systematically (12, 24, 36, 48 points) to simulate spatial distance. Over the course of the experiment, all participants rotate roles (seller and buyer) so that each participant experiences all conditions and positions.

2025-06-25

2025-12-24

Offered Price of Player:
This variable records the final price proposed by each player (seller and buyer) before a transaction is completed in each bargaining interaction.
In the posted-price treatment, the offered price refers to the fixed price posted by the seller prior to any buyer decision.
In the bargaining treatment, both the seller and the buyer may make price offers during negotiation, and this variable captures each player’s last submitted offer before agreement. It does not reflect the sequence or negotiation dynamics, but the final positions of both sides prior to deal closure.
This allows analysis of price convergence, concession behavior, and strategic positioning under different pricing mechanisms.

Sellers’ Profits (per period):
The net profit earned by each seller in each period, calculated as the total revenue from successful sales minus any applicable negotiation costs (in the bargaining treatment).

Buyers’ Payments (Transaction Prices):
The actual prices paid by buyers for goods, which may differ between the posted-price and bargaining treatments.

Sellers’ Market Shares (per period):
The proportion of buyers who chose each seller in each period, indicating competitive performance.

Total Demand for Each Seller:
For each seller, this is the total number of buyers who chose to purchase from them across all periods. It is calculated by summing the number of transactions each seller completes during the experiment. This measure reflects seller popularity and relative attractiveness under different treatment conditions.

Total Profits for Each Player:
This is the sum of profits earned by each participant across all periods, regardless of their role in each round. For sellers, it is calculated by summing all period-level profits (revenue minus any negotiation costs). For buyers, it may reflect residual points or utility (if relevant in payoff structure).

Average Transaction Price per Treatment:
This is calculated by taking the mean of all final prices paid in completed transactions, separately for each treatment condition (posted-price and bargaining). It allows comparison of pricing outcomes under the two mechanisms.

Average Offered Price per Treatment:
For each treatment, this is the average of all final price offers made by players:
In the posted-price treatment, it equals the mean of all sellers’ posted prices.
In the bargaining treatment, it is the average of both sellers’ and buyers’ final offers before agreement. This metric helps capture the price anchor and negotiation strategy under each condition.

Price Dispersion per Treatment: The standard deviation of transaction prices within each treatment condition, reflecting pricing consistency or volatility.

Agreement Rate: The proportion of possible trades that result in successful transactions in each period, used to assess allocative efficiency under different pricing mechanisms.

Buyer Switching Behavior: In the bargaining treatment, this tracks how often buyers exit a negotiation with one seller and switch to another, indicating dissatisfaction or search frictions.

Rejection Rate: The frequency with which offers are rejected by either party, leading to failed negotiations.

Participants and Roles
Participants are randomly assigned to groups of six. Within each group:
Two participants act as sellers (West store and east store).
Two participants act as buyers (Resident A and Resident B).
Each participant experiences all roles over the course of the experiment:
4 rounds in total.
In each round, participants rotate roles so that each participant plays each role exactly once.
Each round consists of 4 periods, covering all 4 possible residential positions for each buyer.

Treatments
There are two experimental conditions:
Posted-Price Treatment: Sellers post prices before buyers make their store choice.
Bargaining Treatment: Buyers visit a seller and negotiate the price. Negotiation is time-limited (2 minutes). Buyers may exit a negotiation and visit the other seller if they choose.

Each group completes both treatment conditions:
4 rounds under the posted-price treatment.
4 rounds under the bargaining treatment.

Transportation Costs
Each buyer faces a transportation cost depending on their assigned position:
Four possible positions: 12, 24, 36, and 48 points per unit of distance.
In each round, buyers experience all four positions exactly once, ensuring a balanced design consistent with the assumption of a uniform distribution.

Product and Trade Rules
Each seller starts each period with two units of goods.
Each good has a fixed value of 100 points.
Unsold goods have zero residual value.

Not available

Treatment Order Assignment:
The two treatment conditions (posted-price and bargaining) were implemented on separate days. On Day 1, all groups completed the posted-price treatment first, followed by the bargaining treatment. On Day 2, the order was reversed: groups first completed the bargaining treatment, followed by the posted-price treatment. Treatment order was therefore not randomized within sessions, but was systematically varied across session days to account for potential order effects while maintaining session-level consistency.

Role Assignment:
At the start of each session, participants were randomly assigned to one of four initial roles (West seller, East seller, Resident A, Resident B). Roles were rotated systematically across rounds, such that each participant experienced each role exactly once over the course of the experiment.

Transportation Cost Conditions:
The order of transportation cost positions (12, 24, 36, 48 points) faced by each buyer was randomized using a fixed Latin Square design. This ensured that each buyer experienced each cost level exactly once, and that the sequence of positions was balanced across participants and rounds.

Group Formation:
In each session (24 participants per day), individuals were randomly assigned to groups of four (2 buyers and 2 sellers per group). Group composition remained fixed throughout the session to preserve within-group interactions, while only roles changed across rounds.

Individual Level:
Role assignment (West store, East store, Ressident A, Ressident B) was randomized at the individual level within each group at the beginning of the experiment.
Buyer transportation cost sequences (12, 24, 36, 48) were also assigned at the individual level to ensure within-subject variation across periods.

Session Level (Non-Randomized Treatment Order):
The order of treatment conditions (posted-price vs. bargaining) was fixed by experimental session day and not randomized across groups. All participants on Day 1 experienced the posted-price treatment, while those on Day 2 experienced the bargaining treatment.

No

Single university.

48 students. each student play all two treatment.

Posted-price, 48 sutdent
Bargaining, 48 student