Thursday, September 1, 2011

bargaining...the perfect example of microeconomics

Pin It Now! Needless to say I love shopping, but sometimes I love the bargaining part even more.  I know haggling isn't in everyone's blood, some are willing to just pay the first price offered by a vendor.  Which is why vendors like to jack up the initial offer price.

Many websites with tips on bargaining will tell you to rebut with half the initial offer from the vendor and work up from there as the vendor works down.  I disagree with this approach.  This is where the microeconomics comes in, as in your willingness to pay and the willingness of the vendor to sell.  This relationship is at the heart of microeconomics and creates an efficient market place in which the buyer gets the item at the price she wants and the seller makes the amount of money on the item he wants.  Both leave the transaction having accomplished their goal.

Which brings me back to rebutting with half the offered price, this is usually not the price I am willing to pay.  I think in many third world countries that have a thriving tourist economy most sellers have inflated their prices because they have found easy fodder in those tourists that don't know how to bargain.  Therefore half the price really is no longer a good starting point. 

Now I go back to microeconomics, I always offer a price of which I am willing to pay, or in other words what I think the item is worth to me personally.  I've found this is usually anywhere from 5% to 15% of what the seller initiates the price at.  From this price I'll go up maybe a buck or two depending on how badly I want the item and the perceived rarity (as in I won't be able to find it from another seller).  I also always buy in bulk, 2 or 3 items at the same time.  And I stand firm with my price, I never waiver. This actually has worked pretty well considering I've had sellers chase me down 30 minutes later to tell me they will sell it for the price I stated.

The only place in which this bargaining has failed was at Chatachuk Market (aka JJ Market or the weekend market) in Bangkok Thailand.  This method only failed because the sellers here were already offering the lowest price they possibly could and were no longer willing to go lower.  There were a few sellers that did go lower on some lovely leather cuffs I bought. We later learned that Chatachuk vendors were already giving us the lowest price possible.  Similar if not the same items in Phuket were much more expensive with sellers not willing to go down to the prices found in Chatachuk.  Goes to show you there's an exception in every rule!

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