When to Haggle
47 Pages Posted: 3 Oct 2001
Date Written: May 2001
A seller faces a buyer with unknown reservation value. We show that buyer risk aversion can make it in the seller's interest to haggle. That is, the seller should make an initial offer and then, if it is rejected, make a second offer with some probability strictly less than one. This is true regardless of whether the seller haggles over price, quality, or price and quality simultaneously. The results are extended to contexts with multiple types of buyers and multiple dimensions for haggling.
Keywords: Economics, Microeconomics, Economics, Economic and Econometric Theory
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