A Foot in the Door: Seller Preferences for Surcharges

Ernan Haruvy, Timo Heinrich and Matthew J. Walker

MPRA Paper from University Library of Munich, Germany

Abstract: This paper studies hold-ups in markets where sellers may impose undisclosed surcharges. While prior work has examined price transparency’s role in market outcomes, the distinct effect of a transparency norm—separate from a fairness norm—remains unestablished. We formulate a simple model that separates these norms and characterizes their equilibrium implications across different market settings. The model shows that price competition yields higher buyer surplus than ultimatum bargaining and that this surplus increases with transparency concerns but decreases with fairness concerns because of softened competition. Compulsory surcharges cannot be higher in bargaining, as sellers prefer a higher price to a higher surcharge as long as it does not change the buyer’s probability of acceptance. Experimental results confirm the transparency norm’s influence: Total prices are lower with price competition, and surcharges are lower with ultimatum bargaining. Additionally, surcharges rise when pricing is outside of the seller’s control. Estimates of the behavioral parameters reveal that sellers weigh transparency at least as heavily as fairness. The results imply that firms fearing hold-ups should still procure goods and services in competitive market structures.

Keywords: surcharge; transparent pricing; fairness; social norm; hold-up; procurement (search for similar items in EconPapers)
JEL-codes: C91 D47 D82 L14 M55 (search for similar items in EconPapers)
Date: 2026-01-05
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