Communication, Learning, and Bargaining Breakdown: An Empirical Analysis

Bargaining breakdown is common in bargaining in environments with incomplete information. We study whether, in these environments, permitting communication impacts bargaining outcomes. On May 23, 2016, eBay Germany’s Best Offer platform introduced unstructured communication allowing desktop users, but not mobile users, to accompany offers with a message. Using this natural experiment, our difference-in-differences approach documents a 14% decrease in 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. Finally, tying the two results together, we show that messages that emulate the text content of experienced sellers are more likely to be accepted. This paper was accepted by Joshua Gans, business strategy. Funding: Part of this research was supported by the NSF [Grant SES-1629060]. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.00366 .