When to Haggle
A seller faces a buyer with unknown reservation value. We show that buyer risk aversion can make it in the seller's interest to haggle. That is, the seller should make an initial offer and then, if it is rejected, make a second offer with some probability strictly less than one. This is true regardless of whether the seller haggles over price, quality, or price and quality simultaneously. The results are extended to contexts with multiple types of buyers and multiple dimensions for haggling.
|Date of creation:||Jun 2001|
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- Sherwin Rosen & Andy Rosenfield, 1995.
University of Chicago - George G. Stigler Center for Study of Economy and State
120, Chicago - Center for Study of Economy and State.
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311, Massachusetts Institute of Technology (MIT), Department of Economics.
- Spence, Michael, 1977. "Nonlinear prices and welfare," Journal of Public Economics, Elsevier, vol. 8(1), pages 1-18, August.
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