Does Haggling Provide Utility in Information Asymmetric Markets? Evidence from Sales Tactics

Abstract

Prottay Hasan, Zaeem-Al Ehsan

Economic theory has largely focused on the purely economic motive of haggling: to reach a better price, and a small body of research at the noneconomic. Even in the discussion of the noneconomic motives, which veers towards psychological roots of motivations for haggling, the paper contends that there remains can angle unexplored: that the act of haggling itself can provide economic utility to buyers under certain circumstances. The research finds that prices in markets with price information hidden to consumers, buyers can perceive utility in haggling—and prices in the market are inflated by buyers to meet this demand for haggling. Furthermore, the research suggests that haggling markets may have disappeared in many places in the world due to this demand for haggling disappearing. The work draws on structured interviews with book salesmen in Dhaka’s “Nilkhet” book market and a focus group discussion with apparel store owners in “Mohammadpur Krishi Market”, another haggling-prone market. The data suggests that price in information-asymmetric markets is based not only on the asymmetry’s favoring producers, but also on the expectation that customers will haggle and seek haggled purchases. Sellers are aware that consumers have a preference to haggle for a good prior to making a purchase, and will ‘top off’ the price they would otherwise sell a good at with a ‘haggling buffer’ to address the buyer’s need to haggle. We can view this as a premium charged to the buyer for their interest in haggling. This premium works in tandem with otherwise expected market forces to create asking prices that rest above what these forces would dictate. It not only accounts for the noneconomic aspect to haggling but, in what ends up being one of the most unexpectedly powerful suggestions of the research, also factors in how shifts in consumer behavior could have resulted in such markets mostly disappearing from developed economies around the world.

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