Too Many Bargainers Spoil The Broth: The Impact of Bargaining on Markets with Price Takers
AbstractIn this paper we study how bargainers impact on markets in which firms set a list price to sell to those consumers who take prices as given. The list price acts as an outside option for the bargainers, so the higher the list price, the more the firms can extract from bargainers. We find that an increase in the proportion of consumers seeking to bargain can lower consumer surplus overall, even though new bargainers receive a lower price. The reason is that the list price for those who don`t bargain and the bargained prices for those who were already bargaining rise: sellers have a greater incentive to make the bargainers` outside option less attractive, at a cost to profits from non-bargainers. Competition Authority exhortations to bargain can therefore be misplaced. We also consider the implications for optimal seller bargaining.
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Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 329.
Date of creation: 01 May 2007
Date of revision:
Bargaining; Price Takers; List Price; Consumer Surplus;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-02 (All new papers)
- NEP-COM-2007-06-02 (Industrial Competition)
- NEP-MIC-2007-06-02 (Microeconomics)
- NEP-MKT-2007-06-02 (Marketing)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gabriele Camera & Alain Delacroix, 2004.
"Trade Mechanism Selection in Markets with Frictions,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 7(4), pages 851-868, October.
- Camera, Gabriele & Delacroix, Alain, 2003. "Trade Mechanism Selection in Markets with Frictions," Purdue University Economics Working Papers 1166, Purdue University, Department of Economics.
- Cason, Timothy N. & Friedman, Daniel & Milam, Garrett H., 2003. "Bargaining versus posted price competition in customer markets," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 223-251, February.
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