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For other uses, see Bargaining (disambiguation).
"Dicker" redirects here. For the surname, see Dicker (surname).
"Dickering" redirects here. For the wapentake of the historic East Riding of Yorkshire, see Dickering Wapentake.
Spice market Djerba, Tunisia.
Medina Tripoli, Libya

Bargaining or haggling is a type of negotiation in which the buyer and seller of a good or service dispute the price which will be paid and the exact nature of the transaction that will take place, and eventually come to an agreement. Bargaining is an alternative pricing strategy to fixed prices. Optimally, if it costs the retailer nothing to engage and allow bargaining, he can divine the buyer's willingness to spend. It allows for capturing more consumer surplus as it allows price discrimination, a process whereby a seller can charge a higher price to one buyer who is more eager (by being richer or more desperate). Haggling has largely disappeared in parts of the world where the cost to haggle exceeds the gain to retailers for most common retail items. However, for expensive goods sold to uninformed buyers such as automobiles, bargaining can remain commonplace.

Dickering refers to the same process, albeit with a slight negative (petty) connotation.

Bargaining is also the name chosen for the third stage of the Kübler-Ross model (commonly known as the stages of dying), even though it has nothing to do with price negotiations.

Contexts where bargaining is allowed[edit]

Not all transactions are open to bargaining. Both religious beliefs and regional custom may determine whether or not the seller is willing to bargain.

Regional differences[edit]

In North America and Europe bargaining is restricted to expensive or one-of-a-kind items (automobiles, antiques, jewelry, art, real estate, trade sales of businesses) and informal sales settings such as flea markets and garage sales. In other regions of the world bargaining may be the norm even for small commercial transactions.

In Indonesia and elsewhere in Asia where locals haggle for goods and services everywhere from street markets to hotels, haggling is a strong cultural tradition that even children learn from a young age. Participating in that tradition can make foreigners feel accepted.[1] Haggling for food items is strongly discouraged in Southeast Asia and is considered an insult, because food is seen as a common necessity that is not to be treated as a tradable good.[2]

In almost all large complex business negotiations, a certain amount of bargaining takes place. One simplified 'western' way to decide when it's time to bargain is to break negotiation into two stages: creating value and claiming value. Claiming value is another phrase for bargaining. Many cultures take offence when they perceive the other side as having started bargaining too soon. This offence is usually as a result of their wanting to first create value for longer before they bargain together. The Chinese culture by contrast places a much higher value on taking time to build a business relationship before starting to create value or bargain. Not understanding when to start bargaining has ruined many an otherwise positive business negotiation.[3]

In areas where bargaining at the retail level is common, the option to bargain often depends on the presence of the store's owner. A chain store managed by clerks is more likely to use fixed pricing than an independent store managed by an owner or one of owner's trusted employees.[citation needed]

The store's ambiance may also be used to signal whether or not bargaining is appropriate. For instance, a comfortable and air-conditioned store with posted prices usually does not allow bargaining, but a stall in a bazaar or marketplace may. Supermarkets and other chain stores almost never allow bargaining. However, the importance of ambiance may depend on the cultural commitment to bargaining. In Israel, prices on day-to-day items (clothing, toiletries) may be negotiable even in a Western style store manned by a clerk.[citation needed]

In India, a sign posted with the phrase fixed price indicates that bargaining is not allowed, although quite often this is not the case.[citation needed]

Theories[edit]

Behavioral theory[edit]

The personality theory in bargaining emphasizes that the type of personalities determine the bargaining process and its outcome. A popular behavioral theory deals with a distinction between hard-liners and soft-liners. Various research papers refer to hard-liners as warriors, while soft-liners are shopkeepers. It varies from region to region. Bargaining may take place more in rural and semi-urban areas than in a metro city.[citation needed]

Game theory[edit]

Bargaining games refer to situations where two or more players must reach agreement regarding how to distribute an object or monetary amount. Each player prefers to reach an agreement in these games, rather than abstain from doing so; however, each prefers that agreement which most favours his interests. Examples of such situations would be the bargaining involved in a labour union and the directors of a company negotiating wage increases, the dispute between two communities about the distribution of a common territory or the conditions under which two countries can start a program of nuclear disarmament. Analyzing these kinds of problems looks for a solution specifying which component in dispute will correspond to each party involved.

Players in a bargaining problem can bargain for the objective as a whole at a precise moment in time. The problem can also be divided so that parts of the whole objective become subject to bargaining during different stages.

In a classical bargaining problem the result is an agreement reached between all interested parties, or the status quo of the problem. It is clear that studying how individual parties make their decisions is insufficient for predicting what agreement will be reached. However, classical bargaining theory assumes that each participant in a bargaining process will choose between possible agreements, following the conduct predicted by the rational choice model. It is particularly assumed that each player's preferences regarding the possible agreements can be represented by a von Neumann–Morgenstern utility theorem function.

Nash [1950] defines a classical bargaining problem as being a set of joint allocations of utility, some of which will correspond to what the players would obtain if they reach an agreement, and another which represents what they would get if they failed to do so.

A bargaining game for two players is defined as a pair (F,d) where F is the set of possible joint utility allocations (possible agreements), and d is the disagreement point.

For the definition of a specific bargaining solution it is usual to follow Nash's proposal, setting out the axioms this solution should satisfy. Some of the most frequent axioms used in the building of bargaining solutions are efficiency, symmetry, independence of irrelevant alternatives, scalar invariance, monotonicity, etc.

The Nash bargaining solution is the bargaining solution which maximizes the product of an agent's utilities on the bargaining set.

The Nash bargaining solution, however, only deals with the simplest structure of bargaining. It is not dynamic (failing to deal with how pareto outcomes are achieved). Instead, for situations where the structure of the bargaining game is important, a more mainstream game theoretic approach is useful. This can allow players' preferences over time and risk to be incorporated into the solution of bargaining games. It can also show how the details can matter. For example the Nash bargaining solution for Prisoners' Dilemma is different from the Nash equilibrium.

Bargaining and posted prices in retail markets[edit]

Retailers can choose to sell at posted prices or allow bargaining: selling at a public posted price commits the retailer not to exploit buyers once they enter the retail store, making the store more attractive to potential customers, while a bargaining strategy has the advantage that it allows the retailer to price discriminate between different types of customer.[4] In some markets, such as those for automobiles and expensive electronic goods, firms post prices but are open to haggling with consumers. When the proportion of haggling consumers goes up, prices tend to rise.[5]

Processual theory[edit]

This theory isolates distinctive elements of the bargaining chronology in order to better understand the complexity of the negotiating process. Several key features of the processual theory include:

  • Bargaining range
  • Critical risk
  • Security point

Integrative theory[edit]

Integrative bargaining (also called "interest-based bargaining," "win-win bargaining") is a negotiation strategy in which parties collaborate to find a "win-win" solution to their dispute. This strategy focuses on developing mutually beneficial agreements based on the interests of the disputants. Interests include the needs, desires, concerns, and fears important to each side. They are the underlying reasons why people become involved in a conflict.

"Integrative refers to the potential for the parties' interests to be [combined] in ways that create joint value or enlarge the pie." Potential for integration only exists when there are multiple issues involved in the negotiation. This is because the parties must be able to make trade-offs across issues in order for both sides to be satisfied with the outcome.[6]

Narrative theory[edit]

A very different approach to conceptualizing bargaining is as co-construction of a social narrative, where narrative, rather than economic logic drives the outcome.

Automated bargaining[edit]

When a bargaining situation is complex, finding Nash equilibrium will be difficult using game theory. Evolutionary computation methods have been designed for automated bargaining, and demonstrated efficient and effective for approximating Nash equilibrium.[7]

Anchor Pricing[edit]

Anchor price is the first call that is made during a bargain. Due to the first call a condition of biased pricing is set which tilts the bargain towards the first caller.

See also[edit]

References[edit]

  1. ^ The Art of Haggling
  2. ^ How to Haggle in Southeast Asia
  3. ^ Bargaining in Western versus Chinese negotiations | Negotiation Experts
  4. ^ Wang, Ruqu (1995). Bargaining versus posted-price selling, European Economic Review, 39(9), 1747-1764
  5. ^ Gill, David and Thanassoulis, John (2009). The impact of bargaining on markets with price takers: Too many bargainers spoil the broth, European Economic Review, 53(6), 658-674 SSRN 1127627
  6. ^ "?". 
  7. ^ "?".  Automated Bargaining project at University of Essex.

Further reading[edit]

The articles in the list were not used in the creation of this article, but provide further background information on the topic. If you are reading this article, and have access to these sources, please consider editing this article and adding references from these sources. -- if you've added a reference, please remove the article from this section.


Original courtesy of Wikipedia: http://en.wikipedia.org/wiki/Bargaining — Please support Wikipedia.
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News Sentinel
Mon, 28 Jul 2014 05:22:30 -0700

Expressing concern about the political impact of their recent collective bargaining votes, Allen County Republican Party Chairman Steve Shine has suggested City Council's GOP majority take steps to safeguard some of the interests of city employees ...

SFGate

New York Times
Mon, 30 Jun 2014 19:04:49 -0700

But there was no mistaking the ominous antipathy toward collective bargaining and workers' rights behind Justice Samuel Alito Jr.'s majority opinion, which was joined by the four conservative members of the court. In Harris v. Quinn, eight home-care ...

Independent Online

BDlive
Mon, 28 Jul 2014 05:30:33 -0700

A failure to end the strike, now in its fifth week, could precipitate a collapse in central bargaining for a bargaining council that covers 10,500 companies employing more than 300,000 people. The strike has hit companies across the spectrum of ...
 
Watchdog.org
Thu, 24 Jul 2014 13:03:45 -0700

Due to collective bargaining disciplinary provisions, police officers engaged in wrongdoing are able to evade consequences by appealing unsettled grievances to a third-party arbitrator. However, the use of binding arbitration to settle grievance ...

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Thu, 24 Jul 2014 14:33:45 -0700

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Los Angeles Daily News
Thu, 24 Jul 2014 23:22:30 -0700

The 35,000 or so member teachers union initiated those changes Thursday, bringing all seven union officers to the bargaining table. In future negotiations, UTLA will invite rank-and-file teachers to sit in on talks and hopes “to bring in parents and ...
 
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Sun, 27 Jul 2014 19:53:22 -0700

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Huffington Post (blog)
Wed, 09 Jul 2014 04:48:10 -0700

The simple fact is that absent government regulation and collective bargaining agreements, the market by itself does not assure that everyone shares in the fruits of society's increased economic productivity. In fact, we know that just the opposite is ...
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