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“Let Me Talk to My Manager”: Haggling in a Competitive Environment

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Author Info

  • Preyas S. Desai

    ()
    (Fuqua School of Business, Duke University, Durham, North Carolina 27708)

  • Devavrat Purohit

    ()
    (Fuqua School of Business, Duke University, Durham, North Carolina 27708)

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    Abstract

    Although negotiating over prices with sellers is common in many markets such as automobiles, furniture, services, consumer electronics, etc., it is not clear how a haggling price policy can help a firm gain a strategic advantage or whether it is even sustainable in a competitive market. In this paper, we explore the implications of haggling and fixed prices as pricing policies in a competitive market. We develop a model in which two competing retailers choose between offering either a fixed price or haggling over prices with customers. There are two consumer segments in our analysis. One segment, the , has a lower opportunity cost of time and a lower haggling cost than the other segment, the . When both retailers follow the same pricing policy, then a haggling policy is more profitable than a fixed-price policy only when the proportion of nonhagglers is sufficiently high. We find two kinds of prisoners' dilemma: under some conditions, a more profitable haggling policy can be broken by a fixed-price policy, and under other conditions, a fixed-price policy can be broken by a haggling policy. Surprisingly, we show that under some conditions, an asymmetric outcome with one retailer haggling and the other offering a fixed price is also an equilibrium.

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    File URL: http://dx.doi.org/10.1287/mksc.1040.0045
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    Bibliographic Info

    Article provided by INFORMS in its journal Marketing Science.

    Volume (Year): 23 (2004)
    Issue (Month): 2 (August)
    Pages: 219-233

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    Handle: RePEc:inm:ormksc:v:23:y:2004:i:2:p:219-233

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    Related research

    Keywords: competitive strategy; marketing strategy; price discrimination; game theory;

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    Cited by:
    1. Gill, David & Thanassoulis, John, 2009. "The impact of bargaining on markets with price takers: Too many bargainers spoil the broth," European Economic Review, Elsevier, vol. 53(6), pages 658-674, August.
    2. Homburg, Christian & Allmann, Jan & Klarmann, Martin, 2014. "Internal and external price search in industrial buying: The moderating role of customer satisfaction," Journal of Business Research, Elsevier, vol. 67(8), pages 1581-1588.
    3. Kuo, Chia-Wei & Huang, Kwei-Long, 2012. "Dynamic pricing of limited inventories for multi-generation products," European Journal of Operational Research, Elsevier, vol. 217(2), pages 394-403.
    4. Jason Allen & Robert Clark & Jean-François Houde, 2012. "Price Competition and Concentration in Search and Negotiation Markets: Evidence from Mortgage Lending," Working Papers 12-4, Bank of Canada.

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