| Abstract: | We offer a study revealing the mechanisms through which communication helps actual bargaining behavior outperform economic predictions. The possibility of individually strategic behavior in the presence of private information leads to game‐theoretic predictions of less than full efficiency. We present a one‐stage, simultaneous offers bargaining game in which buyers and sellers have independent, privately held valuations for the item being sold (i.e. a bilateral auction with two‐sided private information). In three communication treatments, parties are: (a) allowed face‐to‐face communication prior to submitting offers; (b) allowed written communication prior to submitting offers; or (c) allowed no‐communication prior to submitting offers. When parties are allowed pre‐play communication, we find nearly full efficiency (98%). We examine two systematically predictable aspects of dyadic interaction—disclosure and reciprocity—to explain how negotiators achieve this efficiency. Copyright © 2002 John Wiley & Sons, Ltd. |
