The Culture of Private Negotiation: Price Drift in Bilateral Bargaining

Owen R. Phillips and Dale J. Menkhaus

No 21168, 2006 Annual meeting, July 23-26, Long Beach, CA from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: The culture of private negotiation leads parties to agreements below a price that anchors beginning bids and offers. Possible anchors are a list price or suggested retail price. The anchor may be endogenous, e.g., the average reported trade price from previous trading activity. An endogenous anchor may cause a downward or upward drift in negotiated prices. Using bilateral bargaining data from laboratory experimental markets, this paper demonstrates how price information reports create drifts in negotiated prices. A downward drift is robust and causes sharp declines in total market surplus. Also, relative earnings are distributed toward buyers and away from sellers.

Keywords: Demand; and; Price; Analysis (search for similar items in EconPapers)
Pages: 30
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea06:21168

DOI: 10.22004/ag.econ.21168

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