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C. Gopinath

A MATRONLY looking Senegalese woman was standing next to me on the crowded ferry as we approached the capital, Dakar. She wore the traditional flowing garment, boubou, and had a handbag tucked under her right arm. As the boat rocked, we looked at each other and smiled. She asked me if I was married. When I answered in the affirmative, she then wanted to know how many wives I had. From the look on her face, I judged that she was not being flippant. She went on to tell me that she knew how to make my wife happy. She then opened her handbag and pulled out several hand-crafted necklaces and wanted me to buy some. `I give you good price!' she insisted.

A distinguishing feature of commercial transactions involving bargaining is the extensive human interaction that it involves. This woman had used a particularly creative one to try and soften me up prior to a sale. When I declined to make an offer, she persisted for a while, then good-naturedly wished me a pleasant stay, shut her bag, and looked around for another potential customer.

If one dislikes dealing with people, bargaining can be a harrowing experience. A young man from the US narrating to me his visit to Delhi complained how the shopkeepers on Janpath `pressured him' to buy. I explained to him that there were plenty of shops he could have gone to where the price was fixed and they would have left him alone!

In a bargaining situation, if you show interest by touching the item or asking the price, then you are committed to a long process wherein you have to make counter-offers till a price is settled. If you show interest, then after a couple of rounds lose interest, you are not playing the game. For, if you say the quoted price is too high, you will be invited to make an offer. And if you wish to keep the exchange pleasant, your bid should not be humiliatingly low.

Whether your preamble in a bargaining session is positive or negative is definitely a cultural phenomenon. In some cultures, a potential customer can begin by pouting and pretending the item is not of good quality, or not really the type he is looking for. The idea is not to show too much interest, in order to start with a low bid. An alternative approach, appreciated in other cultures, is to begin praising the item as being very good, and then claiming that it is something you cannot afford although you like it! Tells you something about the nature of human relationships in these two cultures.

In contrast, a fixed-price transaction can be almost clinical. You can avoid all human contact. You just walk into a large department store, look at the price tag, take it if you like it, and pay at the counter without a word spoken. Of course, in the bulk of stores where there are sales personnel to help the customer, you pay a fixed price but there is somebody around to help you with more information about the product. And if you try bargaining at a shop where the prices are fixed, you are in for an embarrassing moment.

Another feature distinguishes bargaining from a fixed-price transaction. In the former, the seller may approach the buyer which rarely happens in the latter. Get off the car at Mamallapuram and you will be drowned in shells pretending to be lampshades, ash-trays and dolls as sellers approach you for a sale. In a fixed-price transaction, the location of the seller is where the sale is clinched. That clearly tells you that he has the advantage.

Bargaining, which is a common feature of daily life in most developing economies, is less so but not totally absent in more advance economies. For example in the US, where the price of almost everything is fixed, bargaining is the norm when it comes to buying cars. And for people who like fixed prices, that can be a traumatic experience.

So, you would think that fixed pricing of cars is just waiting to happen. Think again! Even General Motors, which introduced the Saturn car as a separate division with fixed prices has not extended the facility to all its other car divisions. Perhaps, what makes people uncomfortable with bargaining is not the human interaction that they want to avoid, but the feeling that they are being `cheated,' that is, paying more for something than the next person.

Thus, getting into an auto in Chennai, can be a life experience. Especially when we know that the possibility of a fixed price is within reach of a flag that the auto driver refuses to turn up! But even with fixed prices, you can feel cheated because the person sitting next to you may have paid lower. Take airline travel in the US. Price discrimination is the norm because there is no possibility for re-sale. Thus, when you book your ticket, there is no possibility of bargaining with the seller (airline agent, or web services), but the chances are that the person seated next to you paid half the price you did, because he is staying over for a weekend, or he bought it three weeks ahead, or was just smarter in searching the web.

Economics tells us that the equilibrium price is that which clears the market, that is, supply matches demand. If that market is composed of a million transactions like my buying a trinket from a street seller, I would suggest that the economists re-think that statement. Much to my dismay, different prices seem to be clearing the market. As I walk down the labyrinth of the Grand Bazaar in Istanbul, competing sellers try to get my attention to come to their shop. They are not calling out the price to attract me! One looked at me and said, `Namaste! Namaste! Indian? Indian?' I fell for it and bought a decorative plate. I moved two stores away and spied a similar plate and committed the cardinal rule of bazaar shopping — checking on prices after purchase of an item. The price I was offered as an initial bid was lower than the negotiated price I paid minutes earlier.

That is the annoyance of a bargaining situation. You may think that you have got a good price till you spy the same item at another vendor nearby. If you are a sadist, you would ask the price to check if you got it cheap. But instead, if you hear a lower price, you are bound to suffer from dissonance. It is best for you to satisfy yourself that you paid the price that equates the value or satisfaction that the item delivers to you.

The value of a commodity to a consumer is the perceived satisfaction she derives from it. Of course, one would like to be the most efficient buyer in the market and do a survey to arrive at the lowest price at which to buy. That is the optimal solution. But a satisfier would buy the product at the price he is comfortable with. That is the value for him. Ah, embedded value.

In a TV mystery serial I saw sometime ago, a detective in London visits the home of an Asian woman seeking information. The woman turns out to be a seamstress. The long-suffering seamstress who lives with a domineering husband explains that she took to sewing to make some extra money because her husband does not provide for enough to keep the home going. The detective thinks it would be a good idea to get her curtains made there and asks for a price quote. The seamstress quotes a price and then mistaking the look on the detective's face says, "I can lower the price if you think it is too high." But our worldly detective smiles back and says, "No, that is ok. I would like to look at the curtains at my house and think that the person who sewed them was happy doing it."

Here, the detective was prepared to pay a price that promised her satisfaction, or was she softening-up the seamstress for more information?

Now that is a thought relevant for economics and equilibrium pricing. What is the value that the buyer derives from a commodity?

(The author is a professor of international business and strategic management at Suffolk University, Boston, US. His Internet address is cgopinat@suffolk.edu)

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