The impact of bargaining on markets with price takers: Too many bargainers spoil the broth
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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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 & Cemil Selcuk, 2009.
"Price Dispersion with Directed Search,"
Journal of the European Economic Association,
MIT Press, vol. 7(6), pages 1193-1224, December.
- Yongmin Chen & Robert W. Rosenthal, 1993.
"Asking Prices as Commitment Devices,"
0042, Boston University - Industry Studies Programme.
- Yongmin Chen & Robert W. Rosenthal, 1996.
"On the Use of Ceiling-Price Commitments by Monopolists,"
RAND Journal of Economics,
The RAND Corporation, vol. 27(2), pages 207-220, Summer.
- Yongmin Chen & Robert W. Rosenthal, 1994. "On the Use of Ceiling-Price Commitments by Monopolists," Papers 0045, Boston University - Industry Studies Programme.
- Chen, Y. & Rosenthal, R.W., 1994. "On the Use of Ceiling-Price Commitment by Monopolists," Papers 45, Boston University - Industry Studies Programme.
- Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July.
- Maarten C. W. Janssen & José Luis Moraga-González, 2004. "Strategic Pricing, Consumer Search and the Number of Firms," Review of Economic Studies, Wiley Blackwell, vol. 71(4), pages 1089-1118, October.
- Wang, Ruqu, 1995. "Bargaining versus posted-price selling," European Economic Review, Elsevier, vol. 39(9), pages 1747-1764, December.
- Steven Salop & Joseph Stiglitz, 1977.
"Bargains and ripoffs: a model of monopolistically competitive price dispersion,"
Special Studies Papers
94, Board of Governors of the Federal Reserve System (U.S.).
- Salop, Steven & Stiglitz, Joseph E, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 493-510, October.
- Bester, Helmut, 1993. "Bargaining versus Price Competition in Markets with Quality Uncertainty," American Economic Review, American Economic Association, vol. 83(1), pages 278-88, March.
- Arnold, Michael A & Lippman, Steven A, 1998. "Posted Prices versus Bargaining in Markets with Asymmetric Information," Economic Inquiry, Western Economic Association International, vol. 36(3), pages 450-57, July.
- Preyas S. Desai & Devavrat Purohit, 2004. "“Let Me Talk to My Manager”: Haggling in a Competitive Environment," Marketing Science, INFORMS, vol. 23(2), pages 219-233, August.
- Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
- Davis, Douglas D. & Holt, Charles A., 1994. "The effects of discounting opportunities in laboratory posted-offer markets," Economics Letters, Elsevier, vol. 44(3), pages 249-253.
- Raskovich, Alexander, 2007. "Competition or collusion? Negotiating discounts off posted prices," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 341-354, April.
- Camera, Gabriele & Delacroix, Alain, 2003.
"Trade Mechanism Selection in Markets with Frictions,"
Purdue University Economics Working Papers
1166, Purdue University, Department of Economics.
- 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.
- 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.
- Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:53:y:2009:i:6:p:658-674. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.