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

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  • Phillips, Owen R.
  • Menkhaus, Dale J.

Abstract

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.

Suggested Citation

  • Phillips, Owen R. & Menkhaus, Dale J., 2010. "The culture of private negotiation: Endogenous price anchors in simple bilateral bargaining experiments," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 705-715, December.
  • Handle: RePEc:eee:jeborg:v:76:y:2010:i:3:p:705-715
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    References listed on IDEAS

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    1. Ashenfelter, Orley & Genesove, David, 1992. "Testing for Price Anomalies in Real-Estate Auctions," American Economic Review, American Economic Association, vol. 82(2), pages 501-505, May.
    2. Charles N. Noussair & Charles R. Plott & Raymond G. Riezman, 2013. "An Experimental Investigation of the Patterns of International Trade," World Scientific Book Chapters,in: International Trade Agreements and Political Economy, chapter 17, pages 299-328 World Scientific Publishing Co. Pte. Ltd..
    3. 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.
    4. 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.
    5. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-955, December.
    6. Owen Phillips & Dale Menkhaus & Joseph Krogmeier, 2001. "Laboratory Behavior in Spot and Forward Auction Markets," Experimental Economics, Springer;Economic Science Association, vol. 4(3), pages 243-256, December.
    7. 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.
    8. Daniel McFadden, 2001. "Economic Choices," American Economic Review, American Economic Association, vol. 91(3), pages 351-378, June.
    9. 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.
    10. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
    11. 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.
    12. 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.
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    Cited by:

    1. Holst, Gesa Sophie & Hermann, Daniel & Musshoff, Oliver, 2015. "Anchoring effects in an experimental auction – Are farmers anchored?," Journal of Economic Psychology, Elsevier, vol. 48(C), pages 106-117.
    2. Meub, Lukas & Proeger, Till E., 2015. "Anchoring in social context," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 55(C), pages 29-39.
    3. Phillips, Owen R. & Nagler, Amy M. & Menkhaus, Dale J. & Huang, Shanshan & Bastian, Christopher T., 2014. "Trading partner choice and bargaining culture in negotiations," Journal of Economic Behavior & Organization, Elsevier, vol. 105(C), pages 178-190.
    4. Holst, Gese Sophie & Hermann, Daniel & Mußhoff, Oliver, 2014. "Anchoring Effects in an Experimental Auction," 54th Annual Conference, Goettingen, Germany, September 17-19, 2014 187386, German Association of Agricultural Economists (GEWISOLA).
    5. Meub, Lukas & Proeger, Till, 2014. "An experimental study on social anchoring," Center for European, Governance and Economic Development Research Discussion Papers 196, University of Goettingen, Department of Economics.

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