Dealmaker or Deal Breaker? - How Third Parties Affect Negotiation Behavior and Outcomes

They seem to be the panacea for deadlocked conflicts in various settings such as collective bargaining procedures and consumer disputes. Arbitrators are considered impartial, full of faith and goodwill and help to safe negotiators from exorbitant litigation costs. This would makes them the perfect dealmakers in gridlocked negotiations. However, having an arbitration in prospect influences the bilateral negotiation process in advance and has not been subject to experimental studies, so far. Our laboratory study initially shows that there are downsides of an arbitration especially concerning negotiation behavior and outcome during the bilateral negotiation. We found that the proclamation of an arbitration at the onset of negotiation leads to distributive bargaining behavior and lower agreement rates compared to regular bilateral negotiations. Even though the outcome of a possible future arbitration procedure is uncertain, negotiators regard it as an alternative solution and subsequently concrete their behavior. For political and economic decision-makers it is therefore necessary to consider carefully whether to impose an arbitration procedure in the beginning of a negotiation process.