Nonbinding Suggestions: The Relative Effects of Focal Points versus Uncertainty Reduction on Bargaining Outcomes

This paper focuses on the effects of nonbinding recommendations on bargaining outcomes. Recommendations are theorized to have two effects: they can create a focal point for final bargaining positions, and they can decrease outcome uncertainty should dispute persist. While the focal point effect may help lower dispute rates, the uncertainty reduction effect is predicted to do the opposite for risk-averse bargainers. Which of these effects dominates is of critical importance in the optimal design of alternative dispute resolution (ADR) procedures, which are becoming increasingly utilized to help resolve disputes in a variety of settings. We theoretically examine the effects of recommendations on the bargaining contract zone. Our theoretical framework, which allows bargainers’ final positions to influence a binding outcome should negotiations fail, provides for a more stringent test of focal points than previously considered. We also present data from controlled laboratory bargaining experiments that are consistent with our model of recommendation effects. Recommendations are empirically shown to influence final bargaining positions and negotiated settlement values. Furthermore, dispute rates are significantly lower when one includes recommendations, even where the recommendation is completely ignored in final-stage arbitration. This highlights a potentially significant role for the use of nonbinding procedures, such as mediation, as a preliminary stage in developing more efficient ADR procedures.

THE ROLE OF TRANSACTION COSTS IN MARKET SELECTION: MARKET SELECTION IN COMMERCIAL FEEDER CATTLE OPERATIONS

A survey of commercial feeder cattle operations in Utah revealed that explicit transaction costs such as transportation, shrink, and commissions can not fully explain how marketing alternatives are selected. Implicit transaction costs appear to play a critical role in the determination of market selection. For example, the level of trust between buyer and seller and the socio-economic characteristics of market participants are determinants of which marketing method will be used to sell feeder cattle.Livestock Production/Industries, Marketing,

Market Power with Dynamic Inventory Constraints: The Bias in Standard Measures

This paper incorporates inventory dynamics into an analysis of market power. Using a model in which each firm accounts for the effect of its current action on the current and future actions of itself and its competitors, we show that measures of market power that ignore inventory dynamics are biased. We then apply the model to the beef-packing industry using annual data on cattle stocks, slaughter and prices from 1933-1999. Our estimates suggest that static measures overestimate the amount of market power exerted by beef-packing firms.market power dynamic cattle conjectural variations stock

MARKET POWER IN BEEF PACKING: FEEDLOT "CAPTURE" AND ITS CAUSES

Concentration in the beef packing industry has been rising for the past 25 years. Many studies of market power in beef packing are based on the conjectural variations framework, which depends on accurate estimates of packer input and processing costs. We propose an alternative measure of packer behavior which does not rely on estimates of packer costs. We also suggest how this measure could be used to draw tentative conclusions regarding packer behavior.Agribusiness, Marketing,

MEASURING MARKET POWER WITH VARIABLES OTHER THAN PRICE

Beef packing has become an extremely concentrated industry, yet studies have found that little, if any market power exists. We propose and test alternative measures of behavior that may better describe how packers control purchases from feedlots, using confidential data collected by the USDA Grain Inspection, Packers and Stockyards Administration.Marketing,

If You Can't Trust the Farmer, Who Can You Trust? The Effect of Certification Types on Purchases of Organic Produce

An information asymmetry exists in the market for organic produce since consumers cannot determine whether produce is organically or conventionally grown. Various methods may solve this problem including signaling, reputation, and certification. Signaling and reputation may not work well, because signals are noisy, and reputation may be difficult for a producer to establish. Certification of the farm and its growing methods shows the most promise. A survey instrument testing the efficacy of certification is presented along with empirical analysis suggesting that no notable difference existed between independent certification methods, although independent certification had significantly different effects than self-certification.Asymmetric information, Certification, Ordered probit, Organic produce, Agribusiness,

Does Fact-Finding Promote Settlement? Theory and a Test

Some labor negotiations include a break in which a non-binding recommendation is made by a fact-finder as an intermediate dispute resolution procedure. There is some uncertainty, however, as to whether this fact-finding increases or reduces the likelihood of settlement. Inasmuch as fact-finding reduces uncertainty about the outcome, it may chill bargaining and increase the need for additional dispute resolution procedures. On the other hand, the fact-finder\u27s recommendation may give the parties a focal point around which they are able to craft an agreement, thus reducing the incidence of disputes. Which of these effects dominates is a question that we consider using both a theoretical model and data from a controlled experimental bargaining environment