Organization and Bargaining: Sales Process Choice at Auto Dealerships
Management Science, September 2013, Vol. 59 No. 9 2003-2018
34 Pages Posted: 10 Dec 2012 Last revised: 7 Sep 2013
Date Written: November 19, 2012
This paper examines how firms’ organizational form affects prices negotiated. Negotiated prices are one factor determining whether a vendor or customer captures the value from a transaction. Firms that systematically negotiate more effectively capture more value. Research has investigated individual- and market-level determinants of negotiation outcomes, but little has been done on the firm-level determinants of negotiated prices. I present a first look at one feature, sales process: whether salespeople handle the entire sale in parallel or customers begin with less experienced salespeople who can escalate difficult assignments. I model firms’ choice of sales process as a biform game and test predictions of the model using a combination of transaction-level data on new car purchases in the U.S. and a unique survey of dealership management practices. I find that a serial process has implications consistent with improving firms’ bargaining power and reducing customers’ outside option.
Keywords: bargaining, negotiation, value capture, sales, biform games
JEL Classification: L1, L23, M1, M5
Suggested Citation: Suggested Citation