Farm-gate tomato price negotiations under asymmetric information

This article provides an empirical analysis of farm‐gate tomato price negotiations under asymmetric information. Regression models are estimated to analyze when and by how much sellers stick to their initial ask prices and what explains the variation in the initial ask–offer price spread. Detailed information on 66 farm‐gate tomato transactions and daily tomato wholesale price data from the central vegetable market in Addis Ababa are used for the analysis. Estimation results show that farmers are less committed to their initial ask price when the buyer speaks out the transaction price first, when their quality perceptions of the tomatoes being transacted differ from those of the buyers, and when their tomato farm is at a large distance from the main road. Sellers stick more to their initial ask price when they know that the central market price is high. The initial ask–offer price spread decreases when the buyer speaks out the initial negotiation price first, but increases in the difference in quality perception between buyer and seller, and in the quantity of tomatoes being transacted.