Tuesday, April 19, 2011

Nagging: A Hidden Transaction Cost in Doing Business

It is very close to my wedding, so my fiancee and me went shopping for wedding rings. We went to one small store in Pasar Atom, Surabaya, it is my fiancee's friend's store. Then, after a long process of filtering choices, we finally decided on the design and since they are friends, we used whatever time left before the store closed to chat. The store owner told us stories about her customers, who some of them  bargained for unreasonable prices. And unlucky for her, those people didn't accept "No" as the answer. They kept nagging her over and over, and sometimes even continued on the following day hoping for scraping some more profit margin left.
In the economist's point of view, those bargaining process (nagging is a more precise word, I think) has a hidden cost that is supposed to be counted toward the price. The cost is contributed from the time, emotion, and or maybe some gas in the tank or phone's bill.
Putting on the seller's hat, if time and emotion is a luxurious "goods" (maybe because the store is always busy, so committing yourself to one hard customer might cost us some other potentially easier customers or maybe you are a kind of person who holding down your emotion is a hard thing to do) nagging should be punished by higher price ( in reference of more cost applied to you) rather than giving up some of the profit margin. For these sellers, I would suggest to put on a sign "For every one minute of nagging will cost you $10 extra to the final invoice" or maybe give a reward for those customers who don't bother to bargain the price at all by giving them some discount.
However, if time and emotion is an "inferior goods" to the seller (the customers coming to the store in one day could be figured with one hand), I would suggest set the price really high leaving a huge gap to bargain. If this happens, then it is more a war between the seller and the customer, who is willing to trade more of his time and emotion for a chance of bigger slice of profit. The winner is highly probable the one who value time and emotion less.
Now, it all makes sense why unemployed chidless housewives are the best bargainer in the world...they have all the time in the world and I also sense that there is some pride gleaming in their eyes if they could get the same item as their friends with cheaper price.

1 comment:

  1. "Now, it all makes sense why unemployed chidless housewives are the best bargainer in the world...they have all the time in the world and I also sense that there is some pride gleaming in their eyes if they could get the same item as their friends with cheaper price."

    Very Excellent, Precise, Accurate Argument!!!

    ReplyDelete