Who enjoys going to the bargaining table? - An empirical analysis of bargaining costs in automotive transactions
(A2023-114296)

AUTHORS

Julian Feldhaeuser, University of Tuebingen; Dominik Papies, University of Tübingen; Mario Farsky, The Boston Consulting Group

ABSTRACT

Traditionally, major car brands have been selling new cars via dealers, and the typical purchase process involved price negotiations. In contrast, new entrants (e.g., Tesla) have been selling their cars in direct sales models with non-negotiable prices. Recently, incumbent brands have started considering to also switch to direct sales models without price negotiations. It is, however, unclear how consumers would react to such a major shift and which pricing model they prefer. We shed light on this question by conceptualizing it as a consumer’s choice between a safe non-negotiable price and a “risky” alternative with a negotiated price. We use this conceptualization to measure individual bargaining costs and their determinants. In a sample of 565 recent car buyers, we find average bargaining costs of 0.33% on the offer price, and that higher opportunity cost of time, lower willingness to search, and stronger post-purchase price confirmation are associated with higher bargaining costs.