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

Victor Manuel Bennett

Duke University - Fuqua School of Business; Duke Innovation & Entrepreneurship Initiative

Date Written: November 19, 2012

Abstract

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

Bennett, Victor Manuel, Organization and Bargaining: Sales Process Choice at Auto Dealerships (November 19, 2012). Management Science, September 2013, Vol. 59 No. 9 2003-2018. Available at SSRN: https://ssrn.com/abstract=2187552

Victor Manuel Bennett (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

HOME PAGE: http://sites.duke.edu/bennett/

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

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