Marketing Seminar（2017-10）

Title:“Meet Me Halfway”: The Value of Bargaining

Speaker:Junhong Chu, National University of Singapore

Time:Wednesday, May 10, 13:30-15:00

Place:Room K01, Guanghua Building 2

Abstract

Bargaining is a very important pricing mechanism, prevalent both in the online and offline worlds. However, little empirical work on the value of bargaining in retail markets exists, primarily due to the lack of real-world bargaining data. In this research, we leverage the availability of rich, transaction-level data on bargaining outcomes on a digital marketplace to study the value of bargaining for sellers, buyers, and the platform. We build a structural model capturing the processes inherent in a transaction where bargaining is possible. Specifically, we model the decision to bargain, the bargaining realization, and the purchase decision. Using our results, we perform a counterfactual analysis to derive the value of allowing bargaining on the marketplace. We do this by disallowing bargaining such that all sellers on the marketplace move to a fixed price mechanism. We find that sellers’ profits would be higher after the policy change. Such benefits are heterogeneous among sellers, where sellers with low reputation levels, high detailed seller ratings, and non-promotion products would benefit more. We also show that the saved buyers’ bargaining costs are significant and thus it is also beneficial from buyers’ and a social planner’s perspectives to ban bargaining. However, given the business model of the platform, we explain the reasons why the pricing mechanism stays as what it is even though a policy change would be welfare increasing, and benefit both sellers and buyers.

Introduction

Junhong Chu is an Associate Professor of Marketing at the National University of Singapore. She received Ph.D. degree in Marketing from University of Chicago, U.S. She studiesChannel Management, Classical and Bayesian Modeling, Consumer and Firm Behavior, E-business, High Tech Markets, Network Effects, Retail Competition, Social Interactions and Networking, Structural Modeling. Her work has been published in major marketing journals, such as International Journal of Research in Marketing, Marketing Science. See more about her research at http://bizfaculty.nus.edu/faculty-profiles/157-junhong

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