Essays On Buyer Seller Negotiations

Author : Shanshan Huang
Publisher :
ISBN 13 : 9781303442834
Total Pages : 228 pages
Book Rating : 4.4/5 (428 download)

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Download or read book Essays on Buyer-seller Negotiations written by Shanshan Huang and published by . This book was released on 2013 with total page 228 pages. Available in PDF, EPUB and Kindle. Book excerpt: Negotiation is a widely applied tool to solve seemingly conflicting needs in personal life, business practices, and international affairs (Thompson 2011). The bargainers' role (whether they are buyers or sellers), situational characteristics (availability of information), and the bargainers' strategies (friendly or hostile) generally determine negotiation outcomes (Campbell et al. 1988). In my dissertation I study groups of experimental negotiation environments that other researchers rarely touch. I conduct detailed analyses of player behavior. I find that outcomes are strongly associated with a player's opening bid or offer. Moreover, market practices, such as a buyer choosing a negotiating partner, or a seller choosing a partner, shape player behaviors. One surprising result is that buyers usually outperform sellers in negotiations where theoretically the surplus should be split equally. Rigorous solution concepts are provided for infinite-horizon bilateral bargaining when players have complete information. When players have incomplete information, theorists suggest several solution concepts, in which the history of offers and counteroffers help players form and update beliefs about trading partners. This dissertation presents background on negotiation theory and reports results of market experiments, in three parts. Broadly, I explore (1) bargaining strategies in different choice environments, (2) investigate the relationship between player concession behavior and partner choice, and (3) study role-related framing effects when bargainers have different earning potential. My first essay discusses experimental findings relating to players' bargaining behavior when they are able to choose their counterpart. Three main environments are explored in treatments where buyers and sellers are randomly paired, where each buyer can choose which seller to negotiate with and vice versa, and where the chosen partner is able to reject this choice. Results show that initial prices, which are the first price offers proposed by negotiators, and concessions in subsequent price negotiation explain 66 percent of the variation in final price with random matching; about 40 percent when players can choose their partner; and about 67 percent in the player-choosing-with-rejection treatments. Similar results were found with respect to quantities traded. I conclude that initial prices and concessions are significant determinants of outcome variables in all three treatments. In my second essay, I conduct deep investigations into the relationship between concession behaviors during price negotiations and market efficiency when buyers and sellers are randomly matched or are able to choose and be rejected by each other. In a long-term trading situation, players with aggressive behavior may not be welcomed by their counterparts because it signals potential emergence of competition. On the other hand, when players have the option to choose and reject, players may choose partners who use cooperative strategies. Choosing and rejection may force players to adopt cooperative strategies more often than when players are simply randomly paired. Offers and counteroffers signal how willingly players want to cooperate. Moreover, players using cooperative strategies may be more likely to achieve higher total earnings. I find that players behave more cooperatively and concede in similar manners when buyers can choose a seller and the seller can reject the selection than when they are randomly matched. Players do not act cooperatively and concede in similar manners when sellers can choose a buyer and the buyer can reject the selection compared with random-matching. Players' total earnings are also significantly larger when buyers choose sellers than when they are randomly paired. This difference in earnings is not observed, however, when sellers are able to choose buyers. Cooperation helps to sustain profitable relationships. Different concession behaviors depending on whether buyers or sellers are able to choose partners are explored. In my third essay, I study the role-related framing effect where buyers and sellers are given unequal surpluses at the competitive market price. Buyers and sellers, driven by different motivations to trade, apply different strategies. Buyers act as expenditure-minimizers, and sellers behave as gain-maximizers. This paper examines buyer and seller strategies when they face a demand or supply shift in experimental markets. Offers are greatly affected by the shift. Buyers on average make larger concessions for a demand increase; sellers make smaller concessions for a negative supply shock. Extremely low buyer initial prices and moderately high seller initial prices benefit buyers the most. Final trade prices, in the midpoint of buyer and seller initial prices, favor buyers. As a result, buyers almost always outperform sellers, regardless of initial allocations of surplus. Results also show that participants trade less than the competitive equilibrium quantity in a private negotiation trading institution. The paper argues that reluctance to make concessions for a profitable trade can be another reasonable explanation to the disparity between willingness to pay and willingness to accept. (Abstract shortened by UMI.)