Strategic Communication Before Price Haggling : A Tale of Two Orientations

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)922-940
Journal / PublicationMarketing Science
Issue number5
Online published19 Jul 2022
Publication statusPublished - Sept 2022
Externally publishedYes


Sellers may display unreasonably high prices (in high-cost oriented contexts) that are never accepted or would surely be discounted through bilateral bargaining. Conversely, general or vague prices with incredible appeals may be advertised (in low-cost oriented settings) as a range or for a category but not tied to specific items. Nevertheless, these seemingly irrelevant or unbinding prices can affect buyer behavior and bargaining out-come. This paper presents a new explanation for these puzzling phenomena. We propose that advertised reference prices can be a strategic tool to communicate privately known seller costs to influence optimal buyer strategy to search value information. We show that cheap-talk communication via uncommitted prices can be endogenously credible, because optimal buyer search strategy can be imperfectly aligned with seller preference. In particular, a high-cost seller may prefer the buyer to acquire information in a more cautious manner (i.e., less willing to stop at good news but more eager to quit at bad news) than a low-cost seller, which may coincide with the buyer’s optimal search strategy. We demonstrate that endogenous buyer search can serve as a two-way discipline to regulate both high-cost and low-cost sellers’ incentives for deception, which thus can sustain credible communication for high-cost and/or low-cost oriented settings. © 2022 The Author(s).

Research Area(s)

  • bargaining, cheap talk, information acquisition, MSRP, negotiation, reference price, strategic communication