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The culture of private negotiation: Endogenous price anchors in simple bilateral bargaining experiments

  • Phillips, Owen R.
  • Menkhaus, Dale J.
Registered author(s):

    Using bilateral bargaining data from laboratory experimental markets, this paper demonstrates how common knowledge about price averages from past bargains impacts current negotiated prices. This common information creates an endogenous and declining anchor for bargaining agents. The culture of private negotiation leads parties to agreements below the anchor. Currently negotiated prices below the anchor cause reported averages in the next period to fall. The relation between the endogenous anchor and the negotiating culture leads to a downward drift in negotiated prices. Through at least 20 periods of bargaining, relative earnings are distributed toward buyers and away from sellers.

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    File URL: http://www.sciencedirect.com/science/article/B6V8F-50VKM81-4/2/efe38f121394334a388927b80d1a6d99
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    Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

    Volume (Year): 76 (2010)
    Issue (Month): 3 (December)
    Pages: 705-715

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    Handle: RePEc:eee:jeborg:v:76:y:2010:i:3:p:705-715
    Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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    1. Phillips, Owen R. & Menkhaus, Dale J. & Krogmeier, Joseph L., 2001. "Production-to-order or production-to-stock: the endogenous choice of institution in experimental auction markets," Journal of Economic Behavior & Organization, Elsevier, vol. 44(3), pages 333-345, March.
    2. Sarah Grunewald & Ted C. Schroeder & Clement E. Ward, 2004. "Cattle Feeder Perceptions of Livestock Mandatory Price Reporting," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 26(4), pages 521-538.
    3. Ashenfelter, O. & Genesove, D., 1992. "Testing for Price Anomalies in Real Estate Auctions," Working papers 92-2, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Owen Phillips & Dale Menkhaus & Joseph Krogmeier, 2001. "Laboratory Behavior in Spot and Forward Auction Markets," Experimental Economics, Springer, vol. 4(3), pages 243-256, December.
    5. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
    6. Christopher T. Bastian & Lance B. Gittings, 2007. "The Matching Problem (and Inventories) in Private Negotiation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(4), pages 1073-1084.
    7. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
    8. Noussair, Charles N & Plott, Charles R & Riezman, Raymond G, 1995. "An Experimental Investigation of the Patterns of International Trade," American Economic Review, American Economic Association, vol. 85(3), pages 462-91, June.
    9. Menkhaus, Dale J. & Phillips, Owen R. & Bastian, Christopher T. & Gittings, Lance B., 2007. "AJAE Appendix: The Matching Problem (and Inventories) in Private Negotiation," American Journal of Agricultural Economics Appendices, Agricultural and Applied Economics Association, vol. 89(4), November.
    10. Muriel Niederle & Alvin E. Roth, 2009. "Market Culture: How Rules Governing Exploding Offers Affect Market Performance," American Economic Journal: Microeconomics, American Economic Association, vol. 1(2), pages 199-219, August.
    11. Daniel McFadden, 2001. "Economic Choices," American Economic Review, American Economic Association, vol. 91(3), pages 351-378, June.
    12. Green, Donald & Jacowitz, Karen E. & Kahneman, Daniel & McFadden, Daniel, 1998. "Referendum contingent valuation, anchoring, and willingness to pay for public goods," Resource and Energy Economics, Elsevier, vol. 20(2), pages 85-116, June.
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