January 19, 2018

The Art of Negotiation – Lessons from the Market

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Things are not always what they appear to be. On a recent trip to East Asia I took the opportunity to visit a famous street market. Apart from wonderful street food, the market has a wide range of clothing and accessories that attracts both tourists and locals.

One feature struck me. Why were so many stalls selling pretty much the same stuff? Perhaps, if you have taken the Economics examination, you might speculate that the street operates as a perfect market. After all, there are a large number of buyers and sellers there, the products are fairly homogenous, the sellers seek to maximise their profit (more on this later), and no externalities exist.

The reality is, of course, different. The stalls are owned by a small number of people and the market is more like an oligopoly than anything else. Those who are employed to operate the stalls – and there are a lot of stalls – are experts in spotting and assessing ‘punters’ and make their initial offers accordingly.

Savvy tourists, including those who have learned the hard way, often post good advice on TripAdvisor and the like for unwary buyers visiting such markets. Dress down, they say, haggle, offer 25% of the initial price, walk away, etc. Perhaps haggling comes naturally to you – and as negotiators we are taught not to accept the first price – but it does not come naturally to everyone. In markets like these, though, you can watch tourists haggling like pros.

It is the atmosphere there that does it, I reckon. The problem is where do the buyers haggle from? Sellers will often double or treble the price that they would charge locals, giving them a starting price that acts as an anchor influencing downward movement. To put it another way, represented as a distributive bargaining diagram the seller’s opening price would be positioned well to the right.

I mean, how different is the ‘I give a very special price just for you’ in a street market from those unrealistic opening offers we hear from time to time in our business lives? Bazerman and Neale warn of the dangers of anchoring in their book Negotiating Rationally, and the best advice for street markets, and negotiation generally, is to do your homework. Be prepared.

Trying to find a realistic price in such markets can be challenging, but the activity that most negotiators neglect is preparation. On the street, and in life and business, failing to prepare well has its costs too.

 

 

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