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Market Alternatives, Third Party Intervention, and Third Party Informedness in Negotiation

Author

Listed:
  • Vairam Arunachalam

    (University of Missouri)

  • William Dilla

    (University of Missouri)

  • Marjorie Shelley

    (University of Illinois)

  • Chris Chan

    (Macquarie University)

Abstract

Negotiation is one possible mechanism for setting transfer prices when no unique transfer price is obviously correct, allowing divisional managers to run their divisions with some degree of autonomy. This study examines the effects of market alternatives, third party intervention and third party informedness in transfer pricing negotiation. Experiment 1 examined the effects of market alternatives in a fully crossed design of buyer and seller's Best Alternatives To a Negotiated Agreement (BATNA) at four levels (no, low, medium, or high). Experiment 2 examined the effects of third party intervention with reference to role (binding vs. nonbinding) and informedness (informed vs. uninformed). Results of Experiment 1 indicated that both the existence and level of market alternatives affected reservation prices, expected profits, aspiration levels, and individual profits. Dyads with unequal BATNAs did not obtain higher joint profits than those with equal BATNAs, while dyads with unequal BATNAs distributed profits more unevenly between negotiators than dyads with equal BATNAs. Results of Experiment 2 indicated that only making the third party's role binding had an effect on joint profits. However, the presence of a third party and both the role and informedness manipulations affected resource distribution.

Suggested Citation

  • Vairam Arunachalam & William Dilla & Marjorie Shelley & Chris Chan, 1998. "Market Alternatives, Third Party Intervention, and Third Party Informedness in Negotiation," Group Decision and Negotiation, Springer, vol. 7(2), pages 81-107, March.
    • Handle: RePEc:spr:grdene:v:7:y:1998:i:2:d:10.1023_a:1008606709761
    DOI: 10.1023/A:1008606709761
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    References listed on IDEAS

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    Cited by:

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