MARKET ALTERNATIVES, 3RD-PARTY INTERVENTION, AND THIRD-PARTY INFORMEDNESS IN NEGOTIATION

Negotiation is one possible mechanism for setting transfer prices when no unique transfer price is obviously correct, allowing divisional ma nagers 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. Experim ent 1 examined the effects of market alternatives in a fully crossed d esign of buyer and seller's Best Alternatives To a Negotiated Agreemen t (BATNA) at four levels (no, low, medium, or high). Experiment 2 exam ined the effects of third party intervention with reference to role (b inding vs, nonbinding) and informedness (informed vs. uninformed). Res ults of Experiment 1 indicated that both the existence and level of ma rket alternatives affected reservation prices, expected profits, aspir ation levels, and individual profits. Dyads with unequal BATNAs did no t obtain higher joint profits than those with equal BATNAs, while dyad s with unequal BATNAs distributed profits more unevenly between negoti ators 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.