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Price bargaining and quantity bonus in developing economies

Author

Listed:
  • Amegashie, J Atsu

    (University of Guelph)

  • Joe Amoako-Tuffour

Abstract

Consider a seller and a buyer bargaining over the price of an agricultural product in a developing economy. Think of the following common bargaining deal: the seller tries to persuade the buyer to accept a higher price and, in return, give the buyer a deal (i.e., extra units of the product for free). Why doesnÕt the seller just give the buyer a lower price instead of the deal? This paper provides an answer to this question. Although price can apparently replicate the use of quantity bonus (i.e., the free extra units), we argue that price bargaining per se limits the extent to which price can be used. Such bargaining deals are used because the seller can post them but cannot post prices. We explain why these sellers can post quantity bonuses. We give a condition under which the quantity bonus can replicate the equilibrium that would have obtained if the seller could directly post the price. We offer here a theory of bargaining deals.

Suggested Citation

  • Amegashie, J Atsu & Joe Amoako-Tuffour, 2003. "Price bargaining and quantity bonus in developing economies," Royal Economic Society Annual Conference 2003 4, Royal Economic Society.
    • Handle: RePEc:ecj:ac2003:4
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    More about this item

    Keywords

    price bargaining; non-price competition; posted prices; quantity bonus;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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