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The impact of bargaining on markets with price takers: Too many bargainers spoil the broth

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  • Gill, David
  • Thanassoulis, John

Abstract

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.

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  • 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.
    • Handle: RePEc:eee:eecrev:v:53:y:2009:i:6:p:658-674
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    Cited by:

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    3. Zhang, Xubing & Jiang, Bo, 2014. "Increasing Price Transparency: Implications of Consumer Price Posting for Consumers' Haggling Behavior and a Seller's Pricing Strategies," Journal of Interactive Marketing, Elsevier, vol. 28(1), pages 68-85.
    4. Selcuk, Cemil, 2011. "Trading mechanism selection with budget constraints," MPRA Paper 36227, University Library of Munich, Germany.
    5. 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.
    6. John Thanassoulis & David Gill, 2010. "The Optimal Marketing Mix of Posted Prices, Discounts and Bargaining," Economics Series Working Papers 479, University of Oxford, Department of Economics.
    7. Sandro Shelegia & Joshua Sherman, 2018. "Bargaining at Retail Stores: Evidence from Vienna," Economics Working Papers 1606, Department of Economics and Business, Universitat Pompeu Fabra.
    8. Qi Feng & Yuanchen Li & J. George Shanthikumar, 2020. "Competitive Revenue Management with Sequential Bargaining," Production and Operations Management, Production and Operations Management Society, vol. 29(5), pages 1307-1324, May.
    9. Harrington, Joseph E., 2022. "The Anticompetitiveness of a Private Information Exchange of Prices," International Journal of Industrial Organization, Elsevier, vol. 85(C).
    10. Zeng, Xiaohua & Dasgupta, Srabana & Weinberg, Charles B., 2014. "The effects of a “no-haggle” channel on marketing strategies," International Journal of Research in Marketing, Elsevier, vol. 31(4), pages 434-443.

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