Buyer Commitment in Bilateral Bargaining: The Case of Online Japanese C2C Market

TL;DR

This paper examines how buyer commitment affects bargaining dynamics in Japanese online markets, showing that increased commitment improves transaction success and speed but can reduce overall welfare and platform revenue.

Contribution

It introduces a dynamic bargaining model with buyer search and limited commitment, analyzing the effects of commitment on welfare, prices, and platform revenue.

Findings

Explicit buyer pledges increase offer acceptance and reduce reneging.

Greater buyer commitment speeds up transactions and raises seller list prices.

Enhanced commitment can lower total welfare and platform revenue.

Abstract

This paper studies bargaining when buyers can continue searching for alternative sellers while negotiating, which limits their commitment to complete a transaction. Using transaction level data from a Japanese online marketplace, I document frequent post-agreement nonpurchase and show that buyers who explicitly pledge immediate payment are more likely to have their offers accepted, renege less often, and complete transactions faster. I develop and estimate a dynamic bargaining model with buyer search and limited commitment. Counterfactuals that restrict search during bargaining show that increased buyer commitment can reduce total welfare. Sellers especially those with higher valuations benefit from the elimination of delays and walkaways and respond by raising list prices. This reduces buyer welfare by lowering the option value of search and increasing expected list prices. Platform revenue also declines because buyer behavior shifts away from counteroffers and negotiated prices fall.