"Let me talk to my manager": Haggling in a competitive environment

Journal Article (Review;Journal)

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 hagglers, has a lower opportunity cost of time and a lower haggling cost than the other segment, the nonhagglers. 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.

Full Text

Duke Authors

Cited Authors

  • Desai, PS; Purohit, D

Published Date

  • March 1, 2004

Published In

Volume / Issue

  • 23 / 2

International Standard Serial Number (ISSN)

  • 0732-2399

Digital Object Identifier (DOI)

  • 10.1287/mksc.1040.0045

Citation Source

  • Scopus