This project examines in a general context the determinants of the choice made by sellers between an auction and a negotiation method of sale. The limited existing theoretical literature on this topic largely ignores variety of relevant transaction costs in determining sellers' choices. Analysis of the role played by transaction costs in the choice between auction and negotiated sales is the focus of this project. Among the transaction costs considered are presale measurement costs, the costs of the auction process itself, the costs of an auction associated with the constraints an auction imposes on the buyers' offers, contract enforcement costs, and possible principal-agent costs associated with the seller's decision to hire a consultant/auctioneer. This project also examines empirically the determinants of individual sellers' choices between auctions and negotiated sales in two contexts-private timber and cattle sales. The particular empirical applications are chosen because both auctions and negotiations are commonly used in the industries. A data set has been collected for examining private timber sales. The data set contains detailed information on 360 timber sales from North Carolina and is comprised of approximately 50 percent auction and 50 percent negotiated sales. Preliminary analysis provides convincing evidence that the specified transaction costs are important determinants of the choice by private timber owners between auction and negotiated sales procedures. The proposed study will greatly enhance our understanding of the choice among sales procedures, both conceptually and empirically.
