'Meet Me Halfway': The Costs and Benefits of Bargaining

Zhang, Xu, Puneet Manchanda, and Junhong Chu. "Meet Me Halfway: The Costs and Benefits of Bargaining." Marketing Science, 40.6 (2021): 1009-1216.

57 Pages Posted: 19 Jun 2017 Last revised: 28 Dec 2021

See all articles by Xu Zhang

Xu Zhang

London Business School

Puneet Manchanda

University of Michigan, Stephen M. Ross School of Business

Junhong Chu

NUS Business School

Date Written: January 28, 2021

Abstract

Bargaining is an important pricing mechanism, prevalent in both online and offline markets. However, there is little empirical work documenting the costs and benefits of bargaining, primarily due to the lack of real-world bargaining data. We leverage rich, transaction-level bargaining data from a major online platform and supplement it with primary data to quantify the costs and benefits of bargaining for sellers, buyers, and the platform. We do this by building a structural model of buyer demand and seller pricing decisions while allowing for the existence of bargaining initiation cost, loss-of-face cost, and price discrimination. Using our results, we perform three policy simulations to quantify the importance of not distinguishing between no-bargain and failed-bargain transactions, ignoring the loss-of-face cost, and not allowing bargaining. These simulations provide rich details on how the various costs of bargaining impact our understanding of buyer and seller behavior and transaction outcomes. Banning bargaining, in particular, benefits the buyer and the platform greatly, but only has a modest benefit for sellers. Finally, we show that our results are robust to our assumptions and replicate in another product category.

Keywords: Bargaining, Pricing, Platforms, Digital Markets, Structural Models, Alibaba, China

JEL Classification: D40, L10, L11, M30, M31

Suggested Citation

Zhang, Xu and Manchanda, Puneet and Chu, Junhong, 'Meet Me Halfway': The Costs and Benefits of Bargaining (January 28, 2021). Zhang, Xu, Puneet Manchanda, and Junhong Chu. "Meet Me Halfway: The Costs and Benefits of Bargaining." Marketing Science, 40.6 (2021): 1009-1216. , Available at SSRN: https://ssrn.com/abstract=2988631 or http://dx.doi.org/10.2139/ssrn.2988631

Xu Zhang (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

HOME PAGE: http://www.london.edu/faculty-and-research/faculty/profiles/x/xu-zhang

Puneet Manchanda

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-936-2445 (Phone)
734-936-8716 (Fax)

Junhong Chu

NUS Business School ( email )

15 Kent Ridge Drive
Singapore, 119245
Singapore
65-65166938 (Phone)

HOME PAGE: http://bizfaculty.nus.edu/faculty-profiles/157-junhong

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