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The impact of bargaining on markets with price takers: Too many bargainers spoil the broth

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  • Gill, David
  • Thanassoulis, John

Abstract

In 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 do not 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, reducing the incentive to compete for price takers. Competition Authority exhortations to bargain can therefore be misplaced. We also consider the implications for optimal seller bargaining.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:eecrev:v:53:y:2009:i:6:p:658-674
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    References listed on IDEAS

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    11. Gabriele Camera & Cemil Selcuk, 2009. "Price Dispersion with Directed Search," Journal of the European Economic Association, MIT Press, vol. 7(6), pages 1193-1224, December.
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    Citations

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    Cited by:

    1. Cardella, Eric & Seiler, Michael J., 2016. "The effect of listing price strategy on real estate negotiations: An experimental study," Journal of Economic Psychology, Elsevier, vol. 52(C), pages 71-90.
    2. repec:eee:joinma:v:28:y:2014:i:1:p:68-85 is not listed on IDEAS
    3. Selcuk, Cemil, 2011. "Trading mechanism selection with budget constraints," MPRA Paper 36227, University Library of Munich, Germany.
    4. John Thanassoulis & David Gill, 2010. "The Optimal Marketing Mix of Posted Prices, Discounts and Bargaining," Economics Series Working Papers 479, University of Oxford, Department of Economics.
    5. Eric Cardella & Michael J. Seiler, 2016. "The Effect of Listing Price Strategy on Real Estate Negotiations: An Experimental Study," Framed Field Experiments 00623, The Field Experiments Website.
    6. Sandro Shelegia & Joshua Sherman, 2018. "Bargaining at Retail Stores: Evidence from Vienna," Working Papers 1032, Barcelona Graduate School of Economics.
    7. Sandro Shelegia & Joshua Sherman, 2018. "Bargaining at Retail Stores: Evidence from Vienna," Economics Working Papers 1606, Department of Economics and Business, Universitat Pompeu Fabra.
    8. repec:eee:ijrema:v:31:y:2014:i:4:p:434-443 is not listed on IDEAS

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