Affordable Housing Institute : US

On my recent trip to Cairo and Upper Egypt, I spent several hours accompanying the Careful Shopper on her forays into the souks of Cairo, Luxor, Edfu, Esna, and Aswan.

 

And that’s a clean one, folks …

 

While at the end the honors were largely divided between merchants and Careful Shopper, the long intervals I spent dodging hucksters and observing the Careful Shopper in action gave me time to reflect on the economic dynamics of haggling.

 

What does haggling have to do with housing?  Haggling plays a role in any marketplace where the objects being traded are not pure commodities.  So it arises in many cases, such as:

 

Buying or selling a home.  Have you ever sold a home?  Bought one?  Then you have haggled.  Even in buying a larger commodity-like object (e.g. a car), one may haggle over features. 

 

Legislative reconciliation.  When the House and Senate get together to reconcile competing versions of two bills, especially spending bills, that’s haggling.  (Also sometimes called horse-trading.)

 

Married couples in restaurants invariably haggle over who orders what.  (Okay, this last has nothing to do with housing ….)

 

Let’s not even start on used cars, where all the intrinsic elements of a haggling environment are in place.

 

 

“Refund?  Refund?!?“

 

What is haggling?

 

 

Three ideas immediately flow from this definition.

 

1. Haggling is one-to-one.  One merchant, one customer, whose horizons have telescoped down into a closed system.  Lack of outside reference points significantly influences haggling strategies.
2. Transaction execution is not certain.  We might make a deal or we might not. 
3. Settlement price is integral to deal-making.  There is some price below which I will buy.  There’s another price above which you will sell.  Do they overlap, and if so by how much: a great deal, a bit, or not at all? 

 

 

Haggling engagement mechanics.  The game begins when the Stroller (one merely walking through a souk) becomes Engaged.  Recognizing that at some level this is a seduction — the merchant seeking to tempt you with wares into revealing something of your desires — Engagement proceeds in four distinct stages:

 

1. The hook.  Merchants in a souk are as fisherman along a stream; their quarry swims and by any means possible they must hook the quarry, get the quarry’s attention attracted to their shop.
2. The turn.  Once hooked, the quarry must be turned away from her predetermined path.  Blocking the road, even for a step, disrupts the prospect’s flow and kicks in the customer’s Social sense of politeness.
3. The lock.  The prospect is now hooked, and even turned, but must be stopped in place.  That signals, whether the prospect knows it or not, that haggling has begun.  (It’s fascinating to watch because when a given merchant has locked a prospect, all other merchants immediately respect the lock until the prospect again unlocks.)
4. The salvo.  This is the first price the merchant throws out.  It may be entirely outrageous — indeed, as we will see below, it should be outrageous.  But it serves to open the Haggling, because if you respond “too much!”, you have in effect revealed that there is a price, known to you, that is not too much.

 

 

 

“How much you pay not to ride the camel?”

 

The economic dynamics.  Considered in the abstract, one would expect buyers to have all the cards: they have money and choice, and there are dozens if not hundreds of vendors offering good that are very similar.  But in haggling, customers always feel that they have paid too much; they always feel frazzled by the experience.  Haggling levels the playing field – and very effectively too.  How does this happen?

 

Haggling is a closed-environment two-person game of limited information with very asymmetric resources, designed to equalize the power relationships by expanding the variables in play:

 

• Time versus money.  The prospect has money but thinks her time is very valuable.  The merchant has no money and an infinity of time. 
• Experience in the game.  Prospects have little experience buying these goods; merchants have months and years of selling them. 
• Buying/ selling knowledge.  Prospects know next to nothing about the market price of the goods.  The merchant knows what he paid, what people like you have paid before, and what your early offers signal about your likely final landing place.
• Feature uniqueness.  It’s tough to haggle the price of bottled water, because the commodity is readily comparable.  It’s easy to haggle a service (how well done?), or a unique object.  [In housing contexts, it's hard to haggle apartment rent, much easier to haggle home sales price.]  The more distinctive an object, the greater potential for haggling to add value.
• Three types of moves.  The ‘moves’ in a haggle consist of price steps, shifts of focus (”I don’t want this object, now I want that one”), and walkaways.  Of these, the merchant can use only one (price shifts), the prospect all three … yet most prospects (like me) make far too little use of the latter two types.  The expert Careful Shopper slides seamlessly among move types as the situation warrants. 
• Play-acting.  All’s fair in haggling, including emotional performances worthy of commedia dell’arte.
• One-time transaction.  Unlike negotiation, where there is usually a post-agreement performance element, a haggle concludes with a swap: my object for your money.  We part and never return.  All sales are final. 

Two other elements vary depending on the haggle:

 

 

Caleche in Luxor

 

• Object durability.  Some objects (e.g. a granite scarab, a well-located home) retain their value even if not sold.  Others (e.g. a caleche ride to town) have no value unless consumed.  Others (e.g. fruits and vegetables, a sublet leasehold interest) have a limited shelf life.  The more the object depreciates in value, the less enduring time advantage to the merchant.
• Cost to walk away.  Haggling involves investing time, and sometimes additional resources, in ripening the haggle.  If walking away is expensive for the prospect, especially in lost-opportunity cost, the prospect’s leverage diminishes.

Haggling strategies.  Like the Zen martial-arts master whose response to impertinent questions is a lightning-quick head slap, the Careful Shopper is disinclined to share the secrets of her profound martial-shopping training. 

 

 

“Now, this is how we learn to cut prices ….”

 

Nevertheless, you can observe a lot just by watching, and I have deduced the following:

 

1. Defining the haggle frame wins.  The ‘haggle frame’ is the gap between initial bid and ask.  Humans are imprintable — we emotionally anchor ourselves based on first impressions.  So a merchant will always throw out an insanely high price, not because he expects you to accept it, but rather to anchor the upside and get the prospect to counter.  That first counter is a huge move, probably the most significant thing the prospect does, and curiously, the higher the ‘outrageous’ first place, the more it tends to raise the first counter.  Thus, following up the outrageous price with a querulous “How much you pay?” is a brilliant move for the merchant, especially after feigning insult at the prospect’s response to the outrageous opening salvo: it gets the prospect to speak even while the prospect is laboring under the Social mandate to be polite (ergo, offer more).
2. Whoever steps most, loses.  Price steps are the ‘cards’ at play.  Because each step is intended to be a concession, they should work in some kind of diminishing-return sequence toward a convergence point.  More steps weakens each one’s credibility in claiming that it is the last such.  Conversely, no steps at all is not haggling.  The Careful Shopper proved adept at setting a first price, just below her strike price, and then adhering to it even as she was catcalled down the street by a merchant successively trading against himself: “Fifty!  Forty!”  “Okay,” in a tone of great aggravation, “thirty-five!”
3. Knowledge is power.  In several cases, Nancy identified objects she might buy, then haggled with merchants in one town to establish a price range, ultimately walking away solely to be better armed for the next haggle in another town.
4. Fibbing works.  Since this is a one-event encounter, truth is the first casualty.  The best fibs are those that might be true and are impossible to refute.  “I cannot go below 40, because it cost me 35.”  “I saw it cheaper at a stall down the alley.”  “A couple had their second showing this morning and I think they’re going to make an offer.”
5. You will make a reputation.  At each souk, if Nancy engaged a merchant and did not buy, there followed Arabic chatter up and down the street, like air traffic controllers giving vectors of an incoming flight.  Thus by the time she arrived at a later stall, something was known about her … but pushing too hard and not haggling might get her labeled a recalcitrant.  So she consciously harvested information in one place to redeploy in another.
6. Discard any concept of shame.  As the sole goal of haggling is price agreement, credibility is inessential; indeed, each statement need only be credible at the moment it is said.  Time and again I saw merchants make statements that thirty seconds later they directly contradicted.  But the contradiction didn’t matter, as it only undermined their past statements, not the current one. 
7. Prospects can reverse time pressure.  At Edfu bazaar Nancy was starting her slow walkaway when the tour guide, seeing the byplay and wanting to help us, honked impatiently.  The merchant’s price step tempo immediately increased … and Nancy was able to consummate a gallabiyya purchase.  We later complimented our guide on his timeliness.

“How much you pay me to paint this thing?”

 

8. Misdirection helps.  Merchants can sniff desire like sharks smell blood.  Many haggling experts counsel examining multiple objects, or even multiple object types, solely to minimize the apparent interest in any one. 
9. Walk away at an even tempo.  The deadliest walkway involves a steady tempo and a visible near goal (like an open van, door).  Short of a honk, few things accelerate a merchant’s down-steps like the awareness that in three steps and two seconds, the sale is gone for good.

Why don’t merchants haggle guides?  If everything I have listed above is true, why don’t local merchants (e.g. taxi operators) haggle with local guides?  The answers, though self-evident, are illuminating:

 

1. No mismatch of knowledge.  Local guides know the same things local merchants know, so there’s no information premium.
2. Multiple transactions.  Tourists don’t return; guides do.  A guide and merchant will encounter one another many times.  After multiple playings, they will have settled down to an agreed equilibrium.  This leads to the time-honored symbiosis of tour guide, bus driver, and merchant.  “Let stop at this alabaster factory,” followed invariably by the discreet folded bill being slipped back to the guide and the bus driver, right in front of you if you are keen enough to watch for it. 
3. Three-player agency-risk.  Adding a guide introduces a third player; guides and merchants have a shared interest vis-√†-vis prospects.  After asking the hotel concierge for an estimated rate to hire a felucca, the Careful Shopper opened her haggle enough below that number to close below it as well.  When I asked her why, she explained tartly, “she’s not on my side.”

 

If any of this sounds like the relationship among a prospective house buyer, a home seller, and a real estate broker … well, that’s because it is.

 

Why isn’t haggling universal?  The value of markets.  Haggling, as we have discovered, gives merchants leverage; markets are how customers return a sense of balance.  When I shop, I am competing against the other shoppers, but we all have a shared interest in minimizing average prices. 

 

 

 

Conversely, each merchant competes against the others, but they all have a shared interest in increasing total sales and maintaining a floor under prices.  A souk is a merchant’s collective, a place where those in the souk are maximizing their market share at the expense of those out of the souk.  Meanwhile, that same clustering that attracts shoppers by gravity also reduces the potential for each vendor to exploit haggling, because it makes comparison shopping easier. 

 

In short, markets and souks:

 

+ Increase volume

+ Increase throughput rate

– Reduce potential profit per transaction

 

Is this a good tradeoff?  That depends principally on scale – how many merchants, how many customers, how low the cost to walk away — and on alternatives, because customers collectively have the power to compel bazaars to form into markets.

 

A Zeno’s paradox of haggling.  If everything I have just said is true, then why do Egyptian restaurants post prices on signboards?  Why don’t you haggle the price of baba ganoush?

 

 

What is this worth to you?

 

I have a theory, but for now … how much you pay to find out?

 

UPDATE (10/18/05): More on the philosophy of haggling:

 

When two Arabs begin negotiating [He means haggling. -- Ed.], they expect to reach a deal.  Asking the price of an item or making a counteroffer commits one to a process in which two reasonable people acting in goof faith should be able to arrive at an agreement.  This explains why a Westerner who casually asks the price of an object for sale in an Arab market often finds the merchant overly aggressive, and also why, when the Westerner suddenly breaks off a negotiation, the merchant is insulted.

 

Dean King, Skeletons on the Zahara, page 202.

 

 

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