Hostname: page-component-848d4c4894-8kt4b Total loading time: 0 Render date: 2024-07-07T23:46:30.376Z Has data issue: false hasContentIssue false
  • English
  • Français

Bargaining, Search, and Price Dispersion: Evidence from the Live Hogs Market

Published online by Cambridge University Press:  15 September 2016

Tomislav Vukina  and
Xiaoyong Zheng
Tomislav Vukina
Affiliation:
Department of Agricultural and Resource Economics at North Carolina State University in Raleigh, North Carolina
Xiaoyong Zheng
Affiliation:
Department of Agricultural and Resource Economics at North Carolina State University in Raleigh, North Carolina
Get access

Abstract

Using unique panel data on individual transactions between buyers and sellers in the spot market for live hogs, we found a large degree of intra-day price dispersion. Motivated by this empirical puzzle, we offer an explanation which is rooted in the bargaining with search theory. We formulate three hypotheses involving the role of farmers’ search cost, bargaining parties’ patience, and asymmetric information that we believe can explain the observed phenomenon. Empirical analysis shows strong support for all three of the stated theoretical predictions, indicating that the bargaining with search theory explains at least 31 percent of the observed intra-day price variation in this market.

Keywords

intra-day price dispersionbargaining theorysearch costasymmetric information
Type
Contributed Papers
Information
Agricultural and Resource Economics Review , Volume 39 , Issue 3 , October 2010 , pp. 534 - 546
Copyright
Copyright © 2010 Northeastern Agricultural and Resource Economics Association 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Ausubel, L.M., Cramton, P., and Deneckere, R.J. 2002. “Bargaining with Incomplete Information.” In Aumann, R.J. and Hart, S., eds., Handbook of Game Theory (Vol. 3). Amsterdam: Elsevier.Google Scholar
Ayres, I., and Siegelman, P. 1995. “Race and Gender Discrimination in Bargaining for a New Car.” American Economic Review 85(3): 304–321.Google Scholar
Baye, M., and Morgan, J. 2001. “Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets.” American Economic Review 91(3): 454–474.Google Scholar
Baye, M.R., Morgan, J., and Scholten, P. 2007. “Information, Search and Price Dispersion.” In Hendershott, T., ed., Handbook on Economics and Information Systems. Oxford: Elsevier.Google Scholar
Baylis, K., and Perloff, J.M. 2002. “Price Dispersion on the Internet: Good Firms and Bad Firms.” Review of Industrial Organization 21(3): 305–324.Google Scholar
Borenstein, S., and Rose, N.L. 1994. “Competition and Price Dispersion in the U.S. Airline Industry.” Journal of Political Economy 102(4): 653–683.Google Scholar
Cates, S.C., Muth, M.K., Coglaiti, M.C., Fahimi, M., Franklin, J.W., Karns, S.A., Koontz, S., Kosa, K.M., Lawrence, J., Li, Y., Paoli, N.R., Squires, R.J., Taylor, J.L., and Viator, C.L. 2007. “GIPSA Livestock and Meat Marketing Study. Volume 2: Data Collection Methods and Results.” Report prepared for Grain Inspection, Packers and Stockyard Administration (GIPSA), U.S. Department of Agriculture, Washington, D.C.Google Scholar
Chatterjee, K., and Lee, C.C. 1998. “Bargaining and Search with Incomplete Information about Outside Options.” Games and Economic Behavior 22(2): 203–237.Google Scholar
Chatterjee, K., and Samuelson, L. 1983. “Bargaining under Incomplete Information.” Operations Research 31(5): 835–851.Google Scholar
Chen, J. 2006. “Differences in Average Prices on the Internet: Evidence from the Online Market for Air Travel.” Economic Inquiry 44(4): 656–670.Google Scholar
Chikte, S.D., and Deshmukh, S.D. 1987. “The Role of External Search in Bilateral Bargaining.” Operations Research 35(2): 198–205.Google Scholar
Clay, K., Krishnan, R., and Wolf, E. 2001. “Prices and Price Dispersion on the Web: Evidence from the Online Book Industry.” Journal of Industrial Economics 49(4): 521–540.Google Scholar
Dahlby, B., and West, D.S. 1986. “Price Dispersion in an Automobile Insurance Market.” Journal of Political Economy 94(2): 418–438.Google Scholar
Fudenberg, D., and Tirole, J. 1991. Game Theory. Cambridge, MA: MIT Press.Google Scholar
Harding, J.P., Knight, J.R., and Sirmans, C.F. 2003. “Estimating Bargaining Effects in Hedonic Models: Evidence from the Housing Market.” Real Estate Economics 31(4): 601–622.Google Scholar
Harding, J.P., Rosenthal, S.S., and Sirmans, C.F. 2003. “Estimating Bargaining Power in the Market for Existing Homes.” Review of Economics and Statistics 85(1): 178–188.Google Scholar
Hortaçsu, A., and Syverson, C. 2004. “Product Differentiation, Search Costs and Competition in the Mutual Fund Industry: A Case Study of S&P 500 Index Funds.” Quarterly Journal of Economics 119(2): 403–456.Google Scholar
Lee, C.C. 1994. “Bargaining and Search with Recall: A Two-Period Model with Complete Information.” Operations Research 42(6): 1100–1109.Google Scholar
MacMinn, R.D. 1980. “Search and Market Equilibrium.” Journal of Political Economy 88(2): 308–327.CrossRefGoogle Scholar
Morton, F.C., Zettelmeyer, F., and Silva-Risso, J. 2004. “A Test of Bargaining Theory in the Auto Retailing Industry.” Working paper, Yale University, New Haven, CT.Google Scholar
Reinganum, J.F. 1979. “A Simple Model of Equilibrium Price Dispersion.” Journal of Political Economy 87(4): 851–858.Google Scholar
Rubinstein. 1982. “Perfect Equilibrium in a Bargaining Model.” Econometrica 50(1): 97–109.Google Scholar
Sorensen, A.T. 2000. “Equilibrium Price Dispersion in Retail Markets for Prescription Drugs.” Journal of Political Economy 108(4): 833–850.Google Scholar
Stigler, G.J. 1961. “The Economics of Information.” Journal of Political Economy 69(3): 213–225.Google Scholar
U.S. Department of Agriculture. 1998. “Hogs and Pigs: Final Estimates by States 1993-97.” Statistical Bulletin No. 951, Agricultural Statistics Board, National Agricultural Statistics Services, USDA, Washington, D.C. Google Scholar
U.S. Department of Agriculture. 2002. “Assessment of the Cattle and Hog Industries: Calendar Year 2001.” Grain Inspection, Packers and Stockyards Administration (GIPSA), USDA, Washington, D.C. Available at http://www.usda.gov/gipsa/pubs/01assessment/section3.pdf (accessed June 2002).Google Scholar
Varian, H.R. 1980. “A Model of Sales.” American Economic Review 70(4): 651–659.Google Scholar
Vukina, T., Muth, M.K., Piggott, N.E., Shin, C., Wohlgenant, M.K., Zheng, X., Cates, S.C., Coglaiti, M.C., Karns, S.A., Lawrence, J., Taylor, J.L., and Viator, C.L. 2007. “GIPSA Livestock and Meat Marketing Study. Volume 4: Hog and Pork Industries.” Report prepared for Grain Inspection, Packers and Stockyard Administration (GIPSA), U.S. Department of Agriculture, Washington, D.C.Google Scholar
Vukina, T., Shin, C., and Zheng, X. 2009. “Complementarity among Alternative Procurement Arrangements in the Pork Packing Industry.” Journal of Agricultural and Food Industrial Organization 7(1): article 3. Available at http://www.bepress.com/jafio/vol7/issl/art3 (accessed June 1, 2010).Google Scholar
Warner, E.J., and Barsky, R.B. 1995. “The Timing and Magnitude of Retail Store Markdowns: Evidence from Weekends and Holidays.” Quarterly Journal of Economics 110(2): 321–352.Google Scholar
Wollinsky, A. 1987. “Matching, Search, and Bargaining.” Journal of Economic Theory 42(2): 311–333.Google Scholar