The information content of seller-provided presale data in cattle auctions

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Date

1997

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Montana State University - Bozeman, College of Agriculture

Abstract

Both buyers and sellers of goods whose exact characteristics are uncertain have incentives to develop methods of reducing duplicative buyer presale measurements. This thesis examines this issue in the context of the cattle industry where sellers provide different types of presale information to reduce buyers' presale measurement activities. Of particular interest are marketing mechanisms that have developed in auctions for breeding bulls. At auctions of yearling bulls, sellers often provide buyers with information on such characteristics as the hull's birth, weaning, and yearling weights, as well as the hull's pedigree. A primary focus of this thesis is to compare the information contained in these simple performance measures (SPMs) with the information contained in recently developed alternative measures of prospective performance. This alternative--expected progeny differences (EPDs)-uses statistical methods not only to incorporate information on the characteristics of the sale bull, but also the bull' s relatives. The statistical method employed for this comparison is multiple regression analysis. The sale price of a bull is regressed on the hull's performance measures and other terms specified in the seller-buyer agreement. The regression results suggest that the simple performance measures (SPMs) contain substantial information in addition to that contained in expected progeny differences (EPDs). Conversely, it was found that EPDs contain some information in addition to that contained in SPMs, but this information is very limited. This finding is unexpected. EPDs, by construction design, contain the information found in SPMs, plus additional information on traits of related animals. Thus, it was hypothesized that the SPM measurements would contain no additional information beyond that contained within EPDs. The results of this research, however, suggest the contrary. An important question to be addressed by the cattle industry, therefore, is whether the costs of further development of EPDs are warranted.

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