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Precision in a Seller’s Market: Round Asking Prices Lead to Higher Counteroffers and Selling Prices

Author

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  • Margarita Leib

    (Faculty of Economics and Business, University of Amsterdam, 1018 WB Amsterdam, Netherlands)

  • Nils C. Köbis

    (Faculty of Economics and Business, University of Amsterdam, 1018 WB Amsterdam, Netherlands)

  • Marc Francke

    (Faculty of Economics and Business, University of Amsterdam, 1018 WB Amsterdam, Netherlands)

  • Shaul Shalvi

    (Faculty of Economics and Business, University of Amsterdam, 1018 WB Amsterdam, Netherlands)

  • Marieke Roskes

    (Faculty of Social Sciences, VU University Amsterdam, 1081 HV Amsterdam, Netherlands)

Abstract

Precise, compared with round, asking prices lead to counteroffers and final agreements that are closer to the asking price. Consequently, popular advice for sellers is to set precise asking prices. We propose that the advice is useful, but only in a buyer’s market, in which buyers counter below the asking price. In a seller’s market, in which buyers counter above the asking price, sellers who wish to receive high counteroffers and sell for high prices should set round asking prices. A preregistered study ( n = 1,809) shows that, compared with round asking prices, precise prices lead to higher counteroffers in a buyer’s market but to lower counteroffers in a seller’s market. The effect is driven by buyers’ use of a finer-grained pricing scale when countering precise asking prices. An analysis of transactions ( n = 8,278) from Amsterdam’s 2017 real estate market, in which 70% of the properties were sold above the asking price, corroborates the experimental findings. Results show that increasing the roundness of the asking price by one decimal, for instance, from precise to the thousands to precise to the tens of thousands, was associated with an increase of 0.6% in the selling price, equivalent to €2,099 on average. This paper was accepted by Yuval Rottenstreich, decision analysis.

Suggested Citation

  • Margarita Leib & Nils C. Köbis & Marc Francke & Shaul Shalvi & Marieke Roskes, 2021. "Precision in a Seller’s Market: Round Asking Prices Lead to Higher Counteroffers and Selling Prices," Management Science, INFORMS, vol. 67(2), pages 1048-1055, February.
  • Handle: RePEc:inm:ormnsc:v:67:y:2021:i:2:p:1048-1055
    DOI: 10.1287/mnsc.2019.3570
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    References listed on IDEAS

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    Cited by:

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    2. Hans R.A. Koster & Jan Rouwendal, 2024. "Housing Market Discount Rates: Evidence From Bargaining And Bidding Wars," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(2), pages 955-1002, May.
    3. Kimbrough, Erik O. & Porter, David & Schneider, Mark, 2021. "Reference dependent prices in bargaining: An experimental examination of precise first offers," Journal of Economic Psychology, Elsevier, vol. 86(C).
    4. Lawrence Kryzanowski & Yanting Wu, 2023. "Signaling effects of recurrent list‐price reductions on the likelihood of house sales," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 46(1), pages 99-130, February.
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    6. Bahník, Štěpán & Yoon, Sangsuk, 2023. "Anchoring effect in business," OSF Preprints 98qdv, Center for Open Science.

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