Communication and Bargaining Breakdown: an Empirical Analysis

Abstract: Bargaining breakdown—whether as delay, conflict, or missing trade—plagues bargaining in environments with incomplete information. Does communication alleviate these costs? Prior theoretical and experimental evidence is ambivalent. We examine this question using field data from an online bargaining marketplace: eBay Germany’s Best Offer platform. On May 23, 2016, the platform introduced unstructured communication allowing buyers and sellers on the desktop version of the site, but not the mobile app, to accompany price offers with a message. Using this natural experiment, our differences- in-differences approach documents a 14% decrease in the the rate of breakdown among compliers. Though adoption is immediate, the effect is not. We show, using text analysis, that the dynamics are consistent with repeat players learning how to use communication in bargaining.