Getting a Break in Bargaining: An Upside of Time Delays

Price negotiations are often characterized by either the buyer or the seller introducing delays and interruptions. In the bargaining literature, time delays are considered costly and could lower the consumer’s incentives to engage in bargaining and also reduce the available surplus if the buyer and the seller engage in bargaining. In this paper, we explore the possibility that unanticipated delays from the seller can change the consumer’s willingness to pay (WTP) for the product. In a set of laboratory experiments, we find evidence that, relative to fixed pricing, bargaining can result in an increase in WTP and, consequently, in purchase likelihood. In particular, we find that the increase in WTP exists only when the seller delays the response in an unanticipated manner. Based on the recovered distributions of WTP, we find that the increase in profits under bargaining because of the increase in WTP can be sizable as compared with the gains from pure price discrimination. The results provide evidence that a seller can potentially benefit from manipulating response time but only when such manipulation is not anticipated by the consumer. We provide preliminary evidence of the underlying mechanisms and discuss the implications of these findings for researchers as well as practitioners.

Duke Scholars

Author Preyas S. Desai Fuqua School of Business