Can threats improve payoffs from bargaining in markets with retaliations? Evidence from a field experiment

Abstract

Evidence on the combined effects of threats and retaliations on bargainers' payoffs from actual marketplaces is scarce. We conduct a natural field experiment in a marketplace where buyers employ verbal threats to negotiate discounts, while sellers can covertly retaliate with fraudulent actions that may negatively affect buyers' payoffs. By varying the threat levels, we find that seller retaliations intensify as the threat level escalates, which more than offset any gains buyers make from negotiating discounts. Our finding highlights that in marketplaces where covert retaliations are feasible, the party employing threats in the bargaining process receives lower financial payoffs than in the absence of any threat, and the payoff declines with an increase in threat intensity. Our finding is particularly relevant for credence goods markets, where sellers may be inclined to intensify undertreatment in response to threats from buyers.