“Let Me Talk to My Manager”: Haggling in a Competitive Environment

Preyas S. Desai () and Devavrat Purohit ()
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Preyas S. Desai: Fuqua School of Business, Duke University, Durham, North Carolina 27708
Devavrat Purohit: Fuqua School of Business, Duke University, Durham, North Carolina 27708

Marketing Science, 2004, vol. 23, issue 2, 219-233

Abstract: 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 , has a lower opportunity cost of time and a lower haggling cost than the other segment, the . 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.

Keywords: competitive strategy; marketing strategy; price discrimination; game theory (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (39)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:23:y:2004:i:2:p:219-233

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