Dave Henderson, of EconLog, writes:
Ralph had brought along copies of his latest book for sale for $27.50. Earlier, in his lunch talk, he had said that we don’t really have freedom of contract because corporations give us boilerplate contracts that don’t allow us to change the terms. It’s take it or leave it. I wanted an autographed copy but I didn’t want to pay $27.50. So I went up to him while he was autographing and put my arm around him and said, “You know how you think we should be able to negotiate and you don’t like take or it leave it deals.” I held out a $20 bill and said, “I’ll give you $20.” He grinned and knew he was trapped. “How about $22?,” he said. “Deal,” I said. I opened my wallet and didn’t have two ones and his aide noticed a $5 in there and said, “What about $25?” “No,” I said. “But you have $25,” said his aide. “Right,” I said, “and $25 is not $22.” Ralph pulled out three ones and we finished the transaction.
I’m not the biggest fan of Ralph Nader, but I am glad to see him taking his principle to wallet. Taking principles to heart is overrated. It’s hard to substantiate his claim about contracts with the reality of falling transaction costs. There are many large corporiations which offer contracts that are both highly negotiable and easily dismissable. What I assume his qualm is about is that many contracts are not easily breakable. But I can’t think of a time when I made a contract (formal or informal) specifically negotiating a “ease of termination” clause…but of course, there are companies that have capitalized on that very market! In fact, loans often have features that allow you insurance against unemployment, even up to cancelling your debt. So that’s a no-go.
Of course, all of that speculation about Nader’s intentions was nonsense, as he is clearly railing against labor contracts. Of course, Nader believes in the the “Barbara Ehrenreich Theory of Value”…which is so fundamentally opposed to reality as to be laughable…although I would assume (hope!) that he has a more nuanced view.
I’d be interested in seeing a study on the effects of haggling on efficiency. In economies where haggling is the norm (Mexico, India, etc.), the practice involves a very large level of price discrimination, particularly toward foreigners. Price discrimination is not viewed very kindly in the US, but is arguably an incredible tool in enhancing efficiency. However, haggling takes time…and holds the possibility of zero utility (you waste your time and get nothing in return) if a price is not agreed upon. Whereas in the US, transactions simply do not take place unless prices are advertised. I wonder what the balance is.
One time, when trying to haggle may way into a particularly welfare-enhancing deal, I was presenting a hotel receptionist with a deal to bump us up to a suite for the price of a regular room. This was a Wednesday night, in the middle of a dead month, and I figured some income for the hotel was better than an empty room. I inquired and confirmed that the hotel had multiple suites open and was not expecting to book them, and make the case that $70 was better than $0 for the night, AND that if in some freak accident their suites do become booked, she can kick us out of the room at any time and we would take a regular room. There was no deal, and we both had wasted our time, reducing our total efficiency.
I know of a few studies of instances of price discrimination, and reverse auctions but can think of none that measure their aggregate effects on welfare and efficiency compared to fixed price markets. Admittedly, however, I haven’t looked very hard.