Bargaining at Retail Stores: Evidence from Vienna

• Authors: Sandro Shelegia.
• BSE Working Paper: 110505 | March 18
• Keywords: bargaining , posted price , trading mechanism , audit study
• JEL codes: L81, D12, C78, C93
• bargaining
• posted price
• trading mechanism
• audit study

The optimality of trading mechanisms has long been a subject of interest in economics, yet there exists little empirical evidence regarding which mechanisms of trade are deployed in practice. Our audit study of retail stores in Vienna documents previously unknown and important facts. Stores agree to a discount off of the posted price approximately 40% of the time. Discounts are more likely to be granted by small-scale firms, for higher-priced products, and for non-sale items. Our findings are consistent with the predictions of a principle-agent model in which a firm decides whether to augment posted prices with bargaining concessions.