AN EMPIRICAL BARGAINING MODEL OF PRICE DISCOVERY: AN APPLICATION TO THE WASHINGTON/OREGON ASPARAGUS INDUSTRY

The bargaining process and its role in price discovery within the Pacific Northwest asparagus industry is analyzed using a general empirical bargaining model. Growers’ and processors’ inverse supply and demand functions define boundaries for the negotiated prices. OLS and Heckman’s two-stage estimation procedures are used to estimate a stochastic bargaining model of price determination. The results indicate that basic supply and demand forces exert substantial influences on the bargaining process. In particular, expected levels of supply play a paramount role in the level of prices offered, while past prices also influence current offers. The general framework of analysis used in relation to asparagus can be generalized to other commodities where bargaining plays a role in price discovery. The model can be used to investigate the extent to which major economic forces impact bargaining behavior.