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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 dispersion ; bargaining theory ; search cost ; asymmetric information

Subject(s): Demand and Price Analysis

Issue Date: 2010-10

Publication Type: Journal Article

PURL Identifier: http://purl.umn.edu/95603 Published in: Agricultural and Resource Economics Review, Volume 39, Number 3 Page range: 534-546

Total Pages: 13

Record appears in: Northeastern Agricultural and Resource Economics Association (NAREA) > Agricultural and Resource Economics Review





Author: Vukina, Tomislav ; Zheng, Xiaoyong

Source: http://ageconsearch.umn.edu/record/95603?ln=en



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