Trust and Reciprocity in 2-node and 3-node Networks

In this paper we focus on the interaction between exogenous network structure and bargaining behavior in a laboratory experiment. Our main question is how competition and cooperation interact in a strategic environment based on networked versions of the investment game. We focus on 3-node networked markets and vary the network structure to model competition upstream, where multiple sellers are paired with a monopsonistic buyer, and competition downstream, where a monopolistic seller is paired with multiple buyers. We describe two kinds of models of trust for such networked environments, absolute and relativized models, and use this structure to generate a general hypothesis about these environments: that information crowds in cooperation on the competitive side of the market. The experimental results support this hypothesis. JEL: C91, D00, L14