Experimental studies of arbitration mechanism and two-sided markets

This dissertation consists of three essays. The first essay is an experimental study that examines a relative new type of arbitration called &agr;-Final Offer Arbitration. The second is a theoretical study that introduces inequality aversion as a new explanatory factor for low agreements rates during disputes under arbitration mechanism. The final essay analyzes the effects of different polices on the price stricter in a two-sided market monopoly.;Promising results to improve arbitration used in the field are obtained from Amended Final Offer Arbitration (AFOA), which outperforms Final-Offer Arbitration (FOA) and weakly outperforms Conventional Arbitration (CA). The first essay presents an experiment to evaluate a more general case of AFOA, &agr;-Final Offer Arbitration (&agr;-FOA). This mechanism is similar to a second-price auction, which punishes the loser with a value proportional (&agr;) to the difference between her final offer and the arbitrator's fair settlement. The experiment furthermore divides the pool of subjects within a session into two groups according to their estimated risk preferences in order to assess how the contract zone depends on the relative risk preferences of the subjects involved in negotiation.;Although agreement rates overall are low, the results show that &agr;-FOA has a significantly higher agreement rate than both CA and FOA. Contrary to theoretical prediction the more risk-averse group of subjects does not have a higher agreement rate than the less risk-averse group of subjects.;The second essay proposes an as yet unstudied factor to explain disagreements between disputants under &agr;-Final Offer Arbitration and Conventional Arbitration. Using a utility function proposed by Fehr & Schmidt (1999) that includes inequality aversion, the model predicts that two risk-neutral disputants will not reach an agreement if one of them has positively biased beliefs about the size of the pie.;The third essay investigates the effects of different policies on price structure and consumer surplus in a two-sided market monopoly. In a laboratory environment, most of the monopolists charge a price below cost even if there is no threat of new competitors. A policy that imposes that the monopolist must charge the same price for both sides of the market decreases the total consumer surplus, while a policy that imposes that prices must be above costs decreases the total consumer surplus even more. A tax that increases the cost on one side of the market leads to a decrease in the price that monopolist charges on the other side of the market. These results suggest that the policymakers should distinguish between a one-sided and a two-sided market before they impose different policies.