Monday, May 22, 2006

Bargaining with street hawkers

It was a hot tiring day. I had just finished a series of interviews with street hawkers in front of AIIMS hospital, Delhi. The objective was trying to research them as part of a market economy. I bought a glass of lassi and sat down near Watchbhai. Watchbhai sells watches near the bus-stand opposite AIIMS. After talking with me, he was intrigued why an engineer was interviewing street-hawkers and that it is possible to have a world free of police raj. But I was tired of myself and wanted to know his work. Customers kept dropping in. One of them comes up, and is looking hard and long at all the watches. Watchbhai is talking to me but I suddenly notice that his concentration is focused on the customer's eyeballs. He is following their motion intently but with an air of indifference. The customer seemed to like a particular watch. He asks, "yeh kitne ka hai, bhai?" Watchbhai replies, "Do sau!" And then followed the familiar scene of bargaining. The transaction didnt happen, and watchbhai commenced our conversation again.

That scene struck in my mind and I always wondered what is the right strategy for a customer to purchase a product from a hawker. That curiosity coupled by a recent Game Theory class on price discrimination and a fascinating discussion with an economist colleague elicited a few useful lessons.

While trying to buy something from a street hawker (let us say, books) I always had this quandary. Should I directly ask for the price of the book that I really want (Da Vinci Code) or should I ask prices of random books (including the Da Vinci Code)? In the first case I risk being charged a higher price because the hawker knows my demand for it. In the second case, I probably save time and can mask my demand for it. Masking true intention seems to be a good strategy but not always, as I will explain.

In reality, it comes down to four factors.

1. Number of sellers of the good
2. Possible customers for the good and their type
2. Homogenity of the good or uniqueness of it
3. Visible price discrimination

The worst possible case is to be struck in a situation like the curio shop at the airport where there are no tax rebates. You like a curio but there are no other sellers of the same good. Most are foreigners and can well afford the good. So the seller does not have an incentive to lower the price. And maybe because of other customers around he wont lower the price.

The best possible case is something like the Sarojini Nagar market in Delhi where you want to buy a white shirt. There are a number of hawkers of it. Most other customers are like you (assuming middle-class). They are no foreigners around who can pay higher prices and hence boost the opportunity-cost of the sellers. And if it is uncrowded, better, you can drive a hard bargain. Because the seller doesnt lose other customers if he sells it to you at a slightly low price. Now looking for a non-homogenous good like an unique T-shirt with the face of Al Pacino on it may not give you much chance of a good bargain.

The strategy is to first scan the sellers' market. Find out if there are quite a few sellers who are offering the same kind of good you want and then start bargaining with each. No point masking your desire to possess it. Because you want the seller to know that you do desire it. And if he doesnt sell it, then you are gonna buy it from another place anyway. If it is a kind of unique item not available at other sellers, then mask your desire to buy it. Behave indifferently to it. Since you have concealed crucial information that you are actually interested in it, he will be willing to lower his price.

But the best tip is from my dad for shopping. This applies more to vegetable markets. Stand behind the shrillest-sounding female customer near a vegetable seller. As soon as she strikes a good bargain, jump in and tell the hawker that you want it at the same rate. Few hawkers practice price-discrimination at that point of time.

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