Haggling: The Economics and The Art

Money editor Jolie Minh Tran uses her experiences with street vendors to discuss the art of haggling and offer some tips for the budding traveller.

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The practice of haggling is prevalent in many cultures. Whether one sees it as part of a travelling experience, an opportunity to save money, or a game to win, it boils down to a situation where two parties are interested in cooperating in a transaction but dispute over how to cooperate. Similar to many people, I was more interested in the art of haggling rather than the economics behind it. Fortunately, this summer’s funny bargaining encounters with street vendors forced me to dig a little deeper than what meets the eye.

One of the encounters took place in Hoi An, an ancient town of lanterns in Vietnam that attracts millions of tourists per year. While strolling along a flea market, my friend was drawn to a handmade bag, which she successfully bargained for a price of 120k VND, down from 150k VND. Her closing line sealed the deal, “I only have 120k left, and I know that my sister would really appreciate the gift”. Unfortunately, my friend then realized that she only had bills of 100k and 50k in her wallet. The seller’s smile was quickly turned upside down when he realized that he had to give her 30k in change.

Different scenarios could result from a transaction. In a win-win situation, both parties settle on a price where the seller is happy to sell and the buyer finds it reasonable to buy. In a win-lose situation, one party sells or purchases at a price that they find is benefitting the other excessively. In a lose-lose situation, no transaction occurs. So, what’s at stake?

Varying factors come into consideration depending on the contexts where each negotiation takes place. On the international stage, for example, maintaining reputation is important. It seems unfriendly to promise your trading partner that they are getting the best deal, then to offer even better terms for a new partner the day after. At a street market, nevertheless, sellers need not face such pressure as most tourists are one-time visitors.

Regardless of the situations, both parties would need to have understood their positions and done research prior to coming in. For example, a quick look around a market will gain a buyer valuable insights. If certain goods are sold at multiple shops, consumers can haggle around and buy from a shop that offers the best price. Similarly, the same product might be pricier in the centre of a market, but cheaper on the outskirts.

As for sellers who practice haggling rather than sell at fixed prices, price discrimination is utilized extensively. This pricing strategy is employed by sellers who charge customers different prices for the same products. It is most profitable when sellers know how to separate the market and cater to the demand of each sub-market group.

For example, customers who are less price-sensitive would not mind spending money on additional leg room on a flight, fastpass at theme parks, or an Uber during peak hours. In second-degree price discrimination, sellers offer discounts to consumers who buy in bulk and bigger quantities. In third-degree, sellers charge different prices to consumers who belong to different groups, such as unemployed, military, students, etc.

In a situation that involves haggling, however, price discrimination occurs at first degree. That is, a seller charges the maximum possible price for each unit sold, depending on whom they are dealing with. A typical joke, but useful advice that I hear is that dress down while you go bargain, as sellers will be less likely to settle for a low price if they think you can spend. In the same manner, foreigners tend to get charged significantly more than locals, a practice that price-discrimination street vendors openly admit.

While I was passionately haggling for a wooden notebook, the seller calmly explained in my native language, “You should be content with this price, as I am charging the foreigner next to you twice higher.” It is worth noting that she did not “discriminate” foreigners purely out of loathing, but rather because she believed that foreigners were less informed in terms of local prices and that they were willing to pay more. This is not to say that foreigners are always stuck with having to pay a higher price.

Knowing the economics of haggling, one can learn the art behind it to work around the economics. Some tricks are simple to master. Skepticism is an example. I can’t recall how many times I’ve heard a vendor say, “No one will sell you that price, as it is way below production costs”. Aside from targeting the consumer’s emotions by making them feel absurd, the vendor is pointing out that the asking price is below profits.  Such statement is sound, but collapses as soon as it is found to carry zero degree of truth. Usually, it only takes consumers to walk a few more steps to find out that the next vendor would be happy to sell at a lower price.

Other tricks involve pretending like you are not too interested, or that you are willing to walk away. Sellers find it much easier to negotiate with a customer who has stopped to show interest than to call out to one who is just walking by. Personally, I find rules such as always reduce the first offered price in half or try to learn a few local words to haggle to be wishy-washy and context-dependent. One rule that I do try to remind myself whenever haggling, nonetheless, is that more than the money, bargaining is about establishing a relationship that benefits both parties.

No vendor will feel at ease selling to a stingy customer, and no customer will care to bargain if they feel disrespected from the start. While it is recommended to be kind and warm, it does not help to act overly gullible and generous so that the seller takes advantage of you. One time I was complimenting this artisan’s skills and showing admirations in her products after the purchase, then to hear her mumble “I should have named a higher price to this girl”. Circumstances like these show that building rapport and finding a common ground to satisfy both sides can be tortuous in a bargain.

Fortunately, I choose not to address the twists and turns of haggling and to leave them for us to tackle on our own. I do, however, wish to remark another point. For consumers, the thrill of bargaining can rapidly turn into a game or a negotiation just for the sake of it. For sellers, however, the business is their livelihood. While a few dollars bargained won’t make a buyer poorer or a seller richer, it might often be the case that they go a long way into ensuring that the seller’s family gets to eat a full meal that day. So, while we all find joy in getting good deals, it’s really not worth cutting into our partners’ bottom line in the process.

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