Haggling over Haggling
Will Wilkinson reports that he didn’t buy as many things as he would have liked on a recent trip to Turkey because the cultural proclivity to haggling left him cold. He suspects this experience is generalizable.
[P]robably hundreds of my dollars stayed in my pocket because I didn’t have good information about the quality of products and I knew the retailer is better at bargaining over the surplus than I am, so… there was no transaction and no surplus. Sure, there is a lot of successful gouging going on, but add up millions of instances of “I know you’re going to screw me,” and I suspect that the average retailer is doing worse rather than better under the haggling system. And how about the average native consumer? In competitive posted-price markets, the system basically pre-haggles the price down to the point where the consumer gets most of the surplus.
Megan McArdle thinks Will is looking at it wrong, since all that matters is what something’s worth to you.
It is only right and natural that we should want to maximize our consumer surplus. But as long as you are getting consumer surplus, you should make the deal. Besides, “one price” is no guarantee that you are getting a good deal. It saves time and lets you free ride on the judgment of others, but Consumer Reports, and America’s living rooms, are full of evidence that their judgment isn’t always particularly good.
Responding in the comments, though, Will explains that “I prefer not to pay much more than the lowest price on the market (taking into account search costs, etc), because that leaves me with less with which to buy other things.” Moreover, when buying unusual items in places where one is not familiar with the quality of goods or the reliability of merchants, “there is an extreme information asymmetry” which makes it hard “magically intuit your reservation price.”
Jason Kuznicki and Bruce McQuain chime in with the observation that Will is ignoring the recreational aspect, claiming that haggling is great fun. The latter recounts several anecdotes about his wife spending hours going back and forth before triumphing against an overmatched retailer.
I’m very much with Will on this one. Haggling is inefficient, irritating, and likely results in a net loss for all parties.
There are very few times when one time we’re expected to haggle in America. The most obvious and common is when purchasing a new car — and one company, Saturn, has built a business around removing that from the equation. But, there, the comparisons are transparent, especially in the Internet Age where consumers can get precise figures on what dealers pay for each item of optional equipment.
Similarly, unless it’s a seller’s market, home prices are considered negotiable. Again, though, it’s relatively easy to compare values in a given locality through the advent of multiple listing services. The costs here are enormous, as a parasite class, the “Realtor,” takes a hefty cut of the value for providing that transparency.
There’s also some haggling that goes on in the gray economies of flea markets, yard sales, and so forth but those are easily avoidable transactions.
I’m especially amused at Bruce’s tale. Basically, he has to stand around for hours on end while his wife dickers over the price of various goods which, if they’d been correctly priced to begin with, he’d have been able to avoid. I don’t know enough about the situation to assess whether this would have translated into more time in front of the big screen watching sporting events or more time accompanying his wife shopping, which of course needs to be factored into the equation. Still, unless one derives an enormous amount of pleasure from the process, it strikes me as quite a waste of time.
“Parasite class.” Heh. That’s going to win you some friends in the realty community, true or not.
Perhaps I’ve lived in ‘haggling societies’ too long, but I certainly don’t find it offensive, nor particularly inefficient.
Rather than have someone tell me what something is worth–take it or leave it–I’d much rather be able to argue from the the point of what it’s worth to me. Sometimes I end up ‘overpaying’, i.e., paying more than the item’s cost + reasonable profit. Sometimes I don’t. I guess that’s inefficient to some extent. But I feel I come out on top far more often than otherwise.
If today’s tomatoes aren’t looking so great, why should I pay the price charged for perfect tomatoes? If I’m willing to put up with some defect in a car/shirt/refrigerator for a lower price, I believe I’m competent to make the contract.
Now, I don’t want to have to haggle over every damn thing; fixed prices do have their place. But I certainly do enjoy the give-and-take, particularly when I know that both I and the seller think we struck a good deal…
In the business to business world we call it negotiating, and it goes on all the time. In fact, it is extremely rare that someone just says, “Sure, whatever it costs.” Haggling, negotiating, whatever you want to call it, only supports a specific set of retail transactions.
Another prespective is offered by Wal-Mart which haggles/negotiates with its suppliers but not with its customers.
Sure. In the fixed price world, we do that with multiple stores with, say, outlet malls and TJ Maxx mostly selling the seconds. Although I’ve certainly bought marked down refrigerators which had dents and so forth. But, yes, there’s an efficiency in those cases to being able to negotiate the price.
True. But that’s a transaction between highly specialized people who have a much more keen understanding of the values than a foreign tourist.
The Saturn method of fixed pricing gives everyone what amounts to an x-plan price on their cars.
This saves the non-negotiator a lot of money, taken directly from the pockets of the negotiator.
I have not and will never buy a car with this sort of marketing strategy.
Saturn even puts fixed prices on used cars,and there are no two alike.No thanks.
James, I take your point, but even with highly specialized people who have a much more keen understanding of the values it is still more art than science.