Negotiations are widely used to determine terms of trade and coordinate marketing channels. Although a significant body of literature describes how constructs such as goal compatibility and relative power influence channel relationships, the normative and behavioral principles governing marketing channel negotiations are relatively unexplored. This article reports three experiments examining how various communication types (informational, relational, and coercive messages) and mutual trustworthiness reputations influence sequential bargaining between an uncertain manufacturer and an informed distributor in a marketing channel.
Experiment 1 examines the how different types of communication and their timing may influence bargaining processes and outcomes. Bargainers communicate using three types of messages (informational, relational, and coercive in tenor, but costless and without binding economic content). Manufacturer uncertainty level is also manipulated (high/low). Contrary to economic intuition, bargaining outcomes improve with communication (more so when manufacturer uncertainty was high), even though the limited message set could be construed as inconsequential “cheap talk.” Bargainers build a positive social tenor to their interactions using mainly informational and relational messages in the early stages of interaction. Coercive messages are rare and appear only in prolonged bargaining sequences. With communication, the players bargain more efficiently and the additional surplus increase the uninformed manufacturer profits without affecting distributor profits.
Prior behavioral evidence indicates that trust may influence bargaining processes and outcomes. Yet, trust plays no role in normative bargaining models that are based on incentive compatible signaling. Experiment 2 examines whether high mutual trustworthiness reputations improve bargaining outcomes, particularly when delay cost is relatively low and the informed agent has greater incentive to deceive. Bargaining outcomes improve with higher mutual trustworthiness reputations, regardless of the level of manufacturer uncertainty. As in Experiment 1, the additional surplus increases the uninformed manufacturer profits without affecting distributor profits. The asymmetric accrual of gains from communication to the uninformed manufacturer in both experiments suggests that the results are market outcomes and do not stem from strategic coordination between the negotiators.
Experiment 3 examines the interactive effect of communication type (informational and relational versus no communication) and mutual trustworthiness reputations (high/low). This study does not involve actual bargaining but rather examines how the manipulations affect participants’ anticipations of negotiation outcomes. The findings show that communication effects are contingent on mutual trustworthiness reputations. When trustworthiness is high, both sides are more willing to make price concessions and anticipate faster and more efficient agreements. Relative to no communication, informational message histories produce positive effects under both high and low trustworthiness. Contrary to the often-unconditional advocacy of relational communications in the literature, relational messages are effective when mutual trustworthiness reputations are high, but they backfire when trust is low. The results of Experiment 3 imply that communication strategies in bargaining should be conditioned on the level of trust prevailing in the dyad.
Together, the findings of the three studies replicate and extend previous findings and provide new insights into how explicit communication and shared trust can help bargainers reach more efficient agreements and recover more of the available surplus, even in one-sided asymmetric information scenarios.
Biography
Joydeep Srivastava is Associate Professor of Marketing in the Robert H. Smith School of Business at the University of Maryland. He has a PhD in Marketing from the University of Arizona. Before joining the University of Maryland, he was on the faculty in the Haas School of Business at the University of California, Berkeley. His research interests include managerial and consumer decision making, bargaining and auctions, marketing distribution channels, pricing, and behavioral (experimental) economics. His research has been published in leading academic journals, such as Journal of Consumer Research, Journal of Marketing Research, Organizational Behavior and Human Decision Processes, Marketing Science, Journal of Consumer Psychology, Journal of Retailing, and Marketing Letters. He is a current member of the editorial review board of Journal of Marketing. He is one of a handful of young marketing academics to be recognized as scholars most likely to be the future leaders in marketing by the Marketing Science Institute in 2001.
Dipankar Chakravarti is Professor of Marketing and Vice Dean for Programs in the Carey Business School at the Johns Hopkins University. He holds a PhD in Industrial Administration from Carnegie Mellon University and has held prior faculty appointments at the University of Florida, Duke University, and at the University of Arizona. He was interim dean of the Leeds School during 1998–1999 and head of the Department of Marketing at Arizona during 1988–1992. His research on managerial and consumer decision making in marketing has appeared in Journal of Consumer Psychology, Journal of Consumer Research, Journal of Marketing Research, Journal of Marketing, Journal of the Academy of Marketing Science, Marketing Science, Management Science, Marketing Letters, Competitive Intelligence Review, and Annual Review of Psychology. He is a fellow of the Society for Consumer Psychology and has received several research awards, including the Association for Consumer Research/Journal of Consumer Research award for the best Journal of Consumer Research article published during 1991–1993. He has served as editor of Journal of Consumer Psychology and is a current or former member of the editorial review boards of Journal of Consumer Psychology, Journal of Consumer Research, Journal of Marketing Research, Journal of Marketing, and Psychology and Marketing.
Journal Marketing Research, Volume 46, Number 4, August 2009 View Table of Contents.