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

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  • 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)

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.

Suggested Citation

  • 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.
  • Handle: RePEc:inm:ormksc:v:23:y:2004:i:2:p:219-233
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    File URL: http://dx.doi.org/10.1287/mksc.1040.0045
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    References listed on IDEAS

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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. Selcuk, Cemil & Gokpinar, Bilal, 2017. "Fixed vs. Flexible Pricing in a Competitive Market," Cardiff Economics Working Papers E2017/9, Cardiff University, Cardiff Business School, Economics Section.
    3. Robert Clark & Jason Allen & Jean-Francois Houde, 2010. "Price negotiation in differentiated product markets: An analysis of the market for insured mortgages in Canada," 2010 Meeting Papers 1072, Society for Economic Dynamics.
    4. Steven M. Shugan, 2004. "Editorial: Consulting, Research, and Consulting Research," Marketing Science, INFORMS, vol. 23(2), pages 173-179.
    5. Gangshu (George) Cai & Yue Dai & Sean X. Zhou, 2012. "Exclusive Channels and Revenue Sharing in a Complementary Goods Market," Marketing Science, INFORMS, vol. 31(1), pages 172-187, January.
    6. Siddharth S. Singh & Dipak C. Jain & Trichy V. Krishnan, 2008. "Research Note--Customer Loyalty Programs: Are They Profitable?," Management Science, INFORMS, vol. 54(6), pages 1205-1211, June.
    7. 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.
    8. Jason Allen & Robert Clark & Jean-François Houde, 2012. "Price Competition and Concentration in Search and Negotiation Markets: Evidence from Mortgage Lending," Staff Working Papers 12-4, Bank of Canada.
    9. Steven M. Shugan, 2005. "Comments on Competitive Responsiveness," Marketing Science, INFORMS, vol. 24(1), pages 3-7.
    10. 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.
    11. repec:eee:joinma:v:28:y:2014:i:1:p:68-85 is not listed on IDEAS
    12. Yuxin Chen & Sha Yang & Ying Zhao, 2008. "A Simultaneous Model of Consumer Brand Choice and Negotiated Price," Management Science, INFORMS, vol. 54(3), pages 538-549, March.
    13. Stephen P. King & Demitra Patras, 2014. "Posted prices and bargaining: the case of Monopoly," Monash Economics Working Papers 29-14, Monash University, Department of Economics.
    14. repec:eee:ijrema:v:33:y:2016:i:4:p:907-923 is not listed on IDEAS
    15. 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.
    16. Sandro Shelegia & Joshua Sherman, 2018. "Bargaining at Retail Stores: Evidence from Vienna," Working Papers 1032, Barcelona Graduate School of Economics.
    17. Steven M. Shugan, 2005. "Marketing and Designing Transaction Games," Marketing Science, INFORMS, vol. 24(4), pages 525-530.
    18. 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.
    19. Sandro Shelegia & Joshua Sherman, 2018. "Bargaining at Retail Stores: Evidence from Vienna," Economics Working Papers 1606, Department of Economics and Business, Universitat Pompeu Fabra.
    20. repec:eee:jouret:v:88:y:2012:i:1:p:180-188 is not listed on IDEAS
    21. repec:eee:ijrema:v:31:y:2014:i:4:p:434-443 is not listed on IDEAS

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