Deal or no deal? How round vs precise percentage offers and price-ending mimicry affect impasse risk in over 25 million eBay negotiations

Negotiations can end with a successful deal or with an impasse. To minimize the impasse risk, how assertive and precise should negotiators’ first offers be? Recent studies diverge in their findings as to the advantages and disadvantages of making round vs precise offers. Based on over 25 million eBay negotiations, the present research establishes correlational evidence that buyer offers at round percentages of the seller’s list price—for instance, exactly 50% (75%, 90%, etc.)—coincide with a markedly smaller impasse risk than offers just above (e.g., 50.1%) or just below (49.9%) these round percentages. We also find that buyers who mimic sellers’ list price precision (e.g., offering $89.95 for a product listed at $99.99) and exact price endings ($30.13 for a list price of $40.13) incur markedly smaller impasse risks. Our findings show that the effectiveness of buyers’ round vs precise offers depends on the roundness of the seller’s list price, therefore extending previous research that focused on offer precision without taking the opponent’s list price into account. We discuss promising avenues for future research on the interpersonal effects of offer precision and price-ending mimicry.     

Bird diversity indicates ecological value in urban home prices

It is known that public greenspaces contribute positively to urban home prices; yet urban ecologists also have known that not all greenspaces are equally valuable. Also some ecologically valuable space appears on private residences, not only public spaces. This work examines directly whether using a variable derived from bird species richness and relative abundance adds new information regarding ecological value and if high values of that variable significantly improve urban housing prices. We collected information on approximately 368 home sales in Lubbock, TX from 2008 to 2009 from the Multiple Listing Service: Sale Price, Square Footage, Lot Size and Age in 17 neighborhoods identified by the Lubbock Realtor Association. We conducted bird counts in the vicinity of each home sale and recorded both the total numbers of birds and the number of bird species identified in a particular class—less ubiquitous bird species. Finally, we used GIS to record the percentage of tree cover in the immediate area surrounding each sale. We constructed a predictive model for a bird relative abundance and species richness variable (Bird) from AIC_c statistics. Home price for each sale then was regressed against the predicted value of ‘Bird’ from the selected model and regressed against home price along with other attributes from the Multiple Listing Service. The predicted value for Bird finds that the addition of another desirable, less ubiquitous bird species improves mean home price by $32,028, likely due to the human created landscapes on private properties immediately surrounding a home sale. Curiously, the presence of a nearby park neither explained variation in the ecological indicator nor contributed to home price elevation. This deliberately simple and inexpensive indicator helped to direct attention to the composition of local landscapes in specific areas to assess joint ecological and economic gains rather than presume a priori that open greenspace jointly satisfies these dual objectives.     

DISCOUNT PRICING

We investigate the practice of framing a price as a discount from an earlier price, with information such as “was $200, now $100.” We discuss two reasons why a discounted price—rather than a merely low price—can make a consumer more willing to purchase. First, a high initial price can indicate the seller has chosen to supply a high-quality product. Second, when a seller with limited stock runs a clearance sale, later consumers infer that unsold stock has higher expected quality when its initial price was higher. We also suggest a behavioral explanation, which is that consumers with reference-dependence preferences are more likely to buy if they perceive the price as a bargain relative to the earlier price. Discount pricing is therefore an effective marketing technique, and a seller may wish to deceive potential customers by offering a false discount. The welfare effects of regulation to prevent fictitious pricing are subtle, with potential unintended consequences, and depend on whether consumers are sophisticated or naive. (JEL D18, D42, D83, L15, M31)     

DO REAL ESTATE BROKERS ADD VALUE WHEN LISTING SERVICES ARE UNBUNDLED?

This paper measures the effects of real estate brokerage services provided to sellers, other than MLS listings, on the terms and timing of home sales. It is not obvious that sellers benefit from those services. On the one hand, brokers offer potentially useful knowledge and expertise. On the other hand, because the relationship between the homeowner and the broker resembles a classical principal‐agent problem, the broker may not deploy services in ways that promote the seller's interests. Yet as long as valuable MLS listings are bundled with brokerage services, homeowners may use brokers even if the agency costs exceed the benefits of brokers' knowledge and expertise. Thus, quantification of the net value of brokerage services other than MLS listings bears directly on the recent policy debate over the desirability unbundling of MLS listings. We estimate the effect of a seller's decision to use a broker on list prices, selling prices, and speed of sale for a real estate market with an unusual and critical characteristic: it has a single open‐access listing service that is used by essentially all sellers, regardless of whether they employ brokers. Our central finding is that, when listings are not tied to brokerage services, a seller's use of a broker reduces the selling price of the typical home by 5.9% to 7.7%, which indicates that agency costs exceed the advantages of brokers' knowledge and expertise by a wide margin. (JEL D12, R31, L85)     

THE INCENTIVES FOR RESALE PRICE MAINTENANCE UNDER IMPERFECT INFORMATION

This paper considers both the incentives for and the welfare effects of resale price maintenance (RPM) in retail markets characterized by imperfect consumer information. In markets where point-of-sale information on the product is essential for sales and information on prices is costly, RPM permits manufacturers with some monopoly power to resolve two incentive conflicts with retailers. First, because retailers with price-setting powers do not appropriate the gains in profit to an upstream manufacturer from actions taken to increase demand, their incentives to inform consumers of the product and to set low prices are inadequate. This purely vertical externality results in the classic "double mark-up" of final prices. Second, when consumers' costs of price search vary, stores offering low prices and no information can exist in the market equilibrium. These discount houses free-ride on the informational services of high-price informing retail outlets — a horizontal externality. In the imperfect information setting of this paper, (1) administered pricing improves monopolists' profits by resolving the incentive conflict; (2) the profitable use of a price floor reduces the maximum retail price charged and may reduce the average retail price; (3) price floors or administered prices can be Pareto-improving and more likely welfare (surplus)-improving; (4) price floors are welfare-improving.     

ARBITRAGE ACROSS BORDERS: WHY ITUNES GIFT CARDS SELL ABOVE FACE VALUE ON EBAY

This paper is one of the first to explore international price differences and arbitrage opportunities in the market for downloadable content, by linking the sale of iTunes gift cards above face value on eBay to the arbitrage of iTunes' products (which include downloadable music and videos). This paper shows that iTunes gift cards targeted to non‐U.S. buyers tend to sell for higher prices, controlling for seller reputation, shipping costs, and other variables. Information about the buyers' countries allows us to see whether it is the U.S. store's greater product availability or its lower prices that buyers are interested in. (JEL D40, L10, F10)     

Determinants of buyers' aspiration and reservation price

Previous research has suggested that an initial offer or an estimated market price is adopted as cognitive reference point in a price negotiation. In contrast, in an experiment with 24 psychology and 24 business administration students playing the role of buyers of condominiums, it was found that subjects adopted their reservation price as a reference point although it was influenced by an estimated market price. In a second and third experiment with a total of 32 psychology and 75 business administration students, a close correspondence was also observed between buyers' indicated aspiration prices and their estimates of sellers' reservation prices in that both were similarly affected by an estimated market price. In choosing an aspiration price, buyers may attempt to infer how the sellers' reservation price changes with an estimated market price.     

Manufacturer suggested retail prices,loss aversion and competition

We study a model of vertical relations with imperfect retail competition in which a fraction of the consumers display reference-dependent demand with respect to the manufacturer’s suggested retail price. We demonstrate that in equilibrium the suggestion will either be undercut or complied with by the retailers, but never surpassed: undercutting occurs if competition is fierce, the impact from consumers affected by reference-dependent preferences is significant, and high price suggestions are credible; compliance occurs otherwise. We provide comparisons, and discuss implications, for consumer surplus for the scenarios with suggested retail prices, without vertical restraints and with resale price maintenance.     

RATIONING BY SELLER'S PREFERENCE AND PACIAL PRICE DISCRIMINATION

This paper investigates the behavior of a seller who has a preference for a certain group of customers. The seller maintains stable prices over time and supplements price rationing with a nonprice rationing. In this situation the preferred buyers would have priority over nonpreferred buyers in purchasing the commodity, and if the latter purchase the commodity they may be paying higher prices. It is proposed here that the premium paid by the nonpreferred buyers is a necessary bribe to induce the seller to forego his search for the preferred buyers.     

Strategies of valuation: repertoires of worth at the financial margins

This article draws upon thirteen months of ethnographic research in a Chicago pawnshop to show how prices of objects in pawnshops are actively, socially negotiated using what I term discursive strategies of valuation. Three kinds of discursive strategies of valuation emerge repeatedly in the data: a. references to the specific material attributes of the objects, b. references to the unique biographical histories of the objects, c. reference to the financial need and (relative) social positioning of the customer involved in the negotiation. Examining these strategies reveals the relationship between socially contingent and culturally constructed perceptions of value and the production of price. I find that rhetorical strategies can and do affect price, within limits. Perhaps most surprisingly, the data show that discursive strategies emphasizing a lower socio-economic status can inflate the value, and ultimately the price, of an object during negotiations.     

RESERVE PRICE EFFECTS IN AUCTIONS: ESTIMATES FROM MULTIPLE REGRESSION‐DISCONTINUITY DESIGNS

We present evidence from 260,000 online auctions of second‐hand cars to identify the impact of public reserve prices on auction outcomes. We exploit multiple discontinuities in the relationship between reserve prices and vehicle characteristics to present causal regression‐discontinuity estimates of reserve price impacts. We find an increase in reserve price decreases the number of bidders, increases the likelihood the object remains unsold, and increases expected revenue conditional on sale. We then combine these estimates to calibrate the reserve price effect on the auctioneer's ex ante expected revenue. This reveals the auctioneer's reserve price policy to be locally optimal. (JEL D44, L11, L62)     

DOES THE PER SE RULE DETER VERTICAL PRICE-FIXING?

Manufacturers can easily circumvent legal restrictions on resale price maintenance. They can coordinate and finance their retailers' meet-the-competition price guarantees and guarantee the margins of retailers damaged by price-cutting rivals. Or they can offer various other rewards to outlets that do not discount. Hence, no retailer wants to discount first, and in equilibrium all charge the "suggested" resale price. Antitrust enforcers who want to prevent manufacturers from controlling resale prices would need to scrutinize the whole range of transfers between manufacturers and retailers. Unfortunately, doing so could stifle essential services and penalize innocent firms.     

Transmission of World Prices to Ugandan Coffee Growers in a Liberalised Economy

This article examines the transmission of world coffee prices to the price received by Ugandan coffee growers by means of Directed Acyclic Graphs which reveal the flow of information from the spot indicator price to the London futures price and then to the growers' price. A positive shock in the futures and indicator prices has respectively a positive and negative effect on the growers' price, and Forecast Error Variance Decomposition shows that uncertainty is attributable to own price, London futures price, and indicator price, in rank order. The article recommends that the Ugandan Coffee Development Authority should provide information on both futures and indicator prices to the growers.     

SUPERSTITION IN THE HOUSING MARKET

We provide the first solid evidence that Chinese superstitious beliefs can have significant effects on house prices in a North American market with a large immigrant population. Using real estate data on close to 117,000 house sales, we find that houses with address number ending in “4” are sold at a 2.2% discount and those ending in “8” are sold at a 2.5% premium in comparison to houses with other addresses. These price effects are found either in neighborhoods with a higher than average percentage of Chinese residents, consistent with cultural preferences, or in repeated transactions, consistent with speculative behavior. (JEL D03, R2, Z1)     

Getting Real About Food Prices

The 2008 spike in world grain prices is widely recognised to have had serious impacts on food security and poverty, but these high grain prices are commonly described as low in historical terms – an inconsistency resulting from the use of advanced‐ and global‐economy price indices in calculating real prices. This ignores the high share of food in poor people's expenditures and the indirect effects of income growth on expenditure patterns of rich consumers. Poor consumers have not experienced the same falls in real food prices and are more vulnerable to price shocks. Different price indices must be developed to take account of differences between consumer groups.     

How social comparison influences reference price formation in a service context

What is the influence on reference price when the source of price information is anonymous versus social? This article investigates the formation of reference prices given an observed sequence of past prices in a service context. An experimental study suggests that, considering the same price information, if the source is social (i.e., the prices paid by colleagues), then consumers want to pay less. More specifically, social comparison changes the way individuals weigh information, attributing more importance to the lowest historical prices and to the range in price variations.     

IS LAND LEASING A SOLUTION TO UNAFFORDABLE HOUSING?

The increase in U.S. mortgage rates from nine per cent in 1976 to fifteen per cent in 1982 raised monthly mortgage payments by about sixty per cent, even before rising house prices in the United States over this period are taken into account. Not surprisingly, attention has been focused on ways and means of counteracting spiralling housing costs. One proposed solution is land leasing. Under such an arrangement, the homebuyer purchases the house but leases the land. (There may be an option to buy the land at some time in the future.) Land leasing reduces the overall purchase price, and hence lowers the minimum down-payment and the initial monthly mortgage payment. In Hawaii, land leasing has been a readily available alternative to land owning throughout the postwar period. The analysis of residential housing prices in Hawaii provides some quantitative estimates of the relative prices of leasehold versus fee simple properties. The average price differential is surprisingly small. One explanation of these small price differentials, for which a model is developed and tested here, is that borrowing-constrained households use high discount rates to calculate the present value of the future land price that they will, in effect, have to pay at the expiration of the lease. These discount rates are estimated in a nonlinear hedonic property price equation. The results are then employed to answer the question: Under what conditions would a leaseholder buy the land outright before the expiration of the lease?     

Do Fair Trade Pricing Policies Reduce Inequalities in Coffee Production and Trade?

This article assesses the Fair Trade pricing model for coffee, investigating the ability of minimum prices and a social premium to reduce price risk and remedy inequalities. It highlights some of the challenges involved in controlling prices. Inequalities exist among Fair Trade‐certified farmers; some are poorer than others, and the poorer ones typically produce less coffee. If Fair Trade succeeds in its aim of raising the prices received by farmers, this will benefit more those farmers producing greater volumes of coffee and who are typically less vulnerable. In addressing inequalities, the Fair Trade social premium is superior to minimum prices.     

Auctioning or assigning an object: some remarkable VCG mechanisms

We construct a variant of the Vickrey auction of a single object where the surplus is split in exogenously fixed shares between the seller and the buyers, up to a margin of error vanishingly exponentially as the number of buyers grows. When the object is the common property of the participants, we can similarly construct VCG mechanisms with a vanishingly small cash transfer to the residual claimant. For any integer q, 3 ≤ q ≤ n, we find the mechanism guaranteeing to each participant a fair share of the qth highest valuation, while minimizing the worst possible ratio of the cash transfer to the efficient surplus. We perform a parallel analysis when the object is undesirable. We compare the cash lost to the largest spread between individual valuations, and obtain the same trade-offs between fairness and the relative loss of surplus.