Strategic Alliances in a Veto Game: An Experimental Study

In a veto game, we investigate the effects of "buyout" which allows non-veto players strategically form an intermediate coalition. We report two main experimental findings in this paper. First, the frequency of intermediate coalition formation is much lower than predicted by theory, regardless of the relative negotiation power between veto and non-veto players. Second, allowing coalition formation among non-veto players does not affect the surplus distribution between veto and non-veto players, which diverges from core allocations. This finding contrasts to the literature, which views the ability to form an intermediate coalition as a valuable asset for non-veto players in increasing their bargaining power. Alternatively, we discuss inequity aversion as a possible explanation to support the prevalence of non-core allocations in our data.