Haggling

by Will Wilkinson on May 13, 2008

I hate it. I am terrible at it. As a consequence, I bought nothing in Turkey other than tickets to various things, room, food, and a poster of Ataturk. And I overpaid for all of these things, I’m sure, which has left me a bit bitter about the place. Surely this is inefficient overall, no? I understand the price discrimination argument for haggling, especially in a country with a lot of poverty and tourism. But probably 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. This is why Wal-Mart is a humanitarian triumph, and a shining symbol of civilization. In the world of Wal-Mart, when it comes to divvying up the surplus from exchange, the retailer has very little freedom to try to take you to the cleaners, but profits by assuring you that you will win the argument.

Viewing 14 Comments

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    I wonder if this desire to conduct transactions at arms-length and under well-defined terms is exactly why capitalists are hated by the entire world.

    I also am terrified by the notion of haggling. It bothers me that I am -- it seems like one of the things I ought to be more comfortable with.
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    I just came back from a week in Egypt and the same thing happened. In addition to avoiding haggling, I also failed to purchase many desired items because stopping for even a moment to look at something in a shop meant being hit with a whirlwind of high pressure tactics, grabbing, blatant lies, and unctuous appeals.

    On the rare occasions when a purchase was made, I did overpay, but I made sure to only reward people who didn't act like dicks while trying to make a sale.
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    I think you're clearly correct.

    In programming, there's a common problem with developers focusing too much on local code optimizations (that are within their control) that they ignore global optimizations (that are often out of their control, instead dictated by the overall architecture of the system).
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    Surely this is inefficient overall, no?

    Surely. But advantageous for the individual seller, who would unilaterally forfeit gains from price discrimination by offering fixed prices.

    What's the nature of the commons here? More importantly, what's the mechanism economies with more formal pricing that keeps haggling out? I think the commons is something like widespread public knowledge of prices, as opposed to keeping them private and secret, and the mechanism probably has something to do with the share of a firm's business that is from one-off transactions as opposed to repeat customers.

    A prediction: the more commodified a good or service is, the less haggling we observe; the more unique the product, the more haggling. So no haggling over everyday consumer items at Wal-Mart, more haggling over (rarely purchased) cars, even more over real estate, lots of haggling over large one-off commercial transactions.
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    Much of the basis of the early Quaker fortunes in England was just this: they thought there was a divinely correct price - cost of materials plus your labor - and they sold for that to all comers. No haggling. This meant you could send your kid to buy stuff at the Quaker shop. Your maidservant. You weren't going to get screwed. They pioneered the one price, and they made huge amounts of money doing it.
    So I guess this means the Quakers were the predecessors of Wal-Mart?!
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    But probably 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.

    I'm struggling to understand your odd view that there's One True Price. Surely who much you're willing to pay for the item compared to what you bought it for is the measure of the surplus.
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    Admittedly, it's a human failing, like the people who were ecstatic to buy an iPhone at the original price, but then turned very upset when the price was cut a few months later. The phone didn't change, nor did the price that they paid; it just seems so irrational to me.
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    John, I don't have such stupid views about economics. First, and obviously, for about any good, 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. People are not being stupid when they are nonplussed to find the same pants they just bought for half the price at another store. That's a real loss. Second, in the particular case of haggling in Turkey, there is an extreme information asymmetry. There is no assurance about the quality of goods. Most branded goods are counterfeit, so one can't use brand reputation as a proxy for quality. And there is no way of telling if they are just lying to you about the nature of goods. So you don't know what it's worth to you because you don't know what it really is. For example, Kerry found an allegedly silver bracelet she liked, but we didn't know how to tell whether it was really silver, or the quality of silver advertised, etc.

    I think it's weird to think you can just look at an item and then magically intuit your reservation price.
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    Oh sure you can figure out what you'd pay for something. You're not buying major appliances, you're buying some trinket from a local.

    If I could haggle with street vendors in Korea 25 years ago, not knowing a word of Hangul, anybody can do it.
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    I think you answered your own question when you said

    "the system pre-haggles the price"

    I don't think the existence of a haggling system is based on a collective action problem- no one is choosing to haggle rather than post prices, or rather, no in the US is choosing to post prices.

    Set, posted prices exist when both consumers and producers in a market are capable of rapidly and accurately comparing prices. If I can query the price of 50 rug dealers in an afternoon, competitive pressure will force the market price out into the open.

    In markets where you can't compare prices easily (tourist markets, fragmented economies, highly differentiated goods, collusion-prone environments) you don't get a set price because the lets-look-somewhere-else effect is blunted.

    Everyone keeps the capability to price discriminate if they possibly can.

    As to refraining from shopping because you quiver with terror that someone my take a taste of your surplus- I'll affectionately submit that most people aren't as crazy as you are.
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    According to your comment, it seems that your problem is not with haggling but with the lack of trust in the qualities of the object. Having prices posted about the bracelet wouldn't have helped you, right?

    In addition to the trust issue, I also hate the haggling part per se. I simply feel it isn't fair and my enjoyment is diminished if I pay a price that is higher than other people pay. I may still have a consumer surplus, but I also have a big sign on my back that says, "Sucker." Some (such as McArdle) might call that irrational, but when you are a walking wallet in a poor country, that "sucker" sign stops you from buying their trinkets.
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    I still don't understand Will's point of view. If the problem had been one of not knowing quality or not knowing what his reservation price was, I don't see how that's relevant to whether or not there was a fixed price?

    Imagine that the silver bracelet were sold at a fixed price. How would that help you decide if it were fake or not? Why is charging a fixed $10 for a fake silver item different from asking $20 for the same fake and giving you the option of bargaining down to $10 or $5?

    And assume that you buy the bracelet for $10 and you find out that it's sold elsewhere in Turkey for $5 but sold in the US for $20. Aren't you better off having paid $10 for it than not buying at all?
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    Sounds like the Grease Trucks at Rutgers.
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    What you're saying, if I understand right, is that there's a cost from drain on your energy, and time, which is added to the monetary cost of these items. It would be better for Turkey to have you spend more dollars and less worry.

    I think the same is true of some parts of american life, which in general is pretty weak on consumer protections. For instance there's a huge overhead of people scrutinising the fine print of their cellphone contracts for all the extra charges, or more likely, avoiding this by guestimating these on past experience, which is a similar waste. You shouldn't have to be an expert in all that, they should just print one big price and be done. Ditto restaurants and taxis and sales tax.

    To use everyone's favourite example on the net, what's making Apple rich is (partly) offering fewer choices, and splitting the cost of your mental overhead in figuring out which Dell to buy with you.
 

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