Why is price haggling more common in Macedonia

than in the Netherlands?

Teodor Duevski
December 6, 2015
Ever since ancient times people have been trying to understand what determines the
prices of goods sold in the markets and, what the just price ought to be. For example,
Aristotle argued that if the reservation price of the buyer is Pb and the reservation price
of the seller is Ps , than the just price ought to be the Harmonic mean of those prices,
namely 1 +2 1 ,since this is the price for which the ratio of the differences of this price with
Pb

Pc

the reservation prices is the same as the ratio of the reservation prices themselves. Today
we know that there is no such thing as a just price, instead prices of are determined
by the forces of supply and demand acting simultaneously in the market. However in an
open market where there is a possibility of bargaining between buyers and sellers it is not
easy to find the equilibrium price given expected utility maximization and the reservation
prices of sellers and buyers. In many societies throughout history price haggling has been
a social custom and an art in itself because people who had mastery over this skill would
always be end up on the better side during price negotiations.
When I moved to Amsterdam from Skopje, I knew that the one of the first things I
needed to do is to get a bike. So during AUCs introduction week me and a couple of
friends visited a nearby second hand bike store.Since I only had 40 euros in my pocket my
goal was to get a bike for less than that amount. When I entered the store, however I was
surprised to see that most of the bikes were much more expensive, in particular the bike
which caught my eye costed 70 euros. Although most people would decide to leave, get
more money and come back, I decided to try my luck and haggle with the salesperson.
My first offer was 20 euros and after a while we actually agreed upon a price of 40 euros
for the bike. My friends were very surprised by my haggling skills and asked me to help
them negotiate lower prices. I was happy to do it and they eventually they were able to
get the bikes for a lower price than the price initially set up in the bike store.After we left
the store my friends asked me where have I learned to haggle and how did I know that I
should haggle in the first place. Back than I couldnt think of an elaborate answer so I
just told them that it is a habit I have developed throughout the years. Inspired by the
bike store experience, in this essay I will try to give a couple of economic explanation as
to why might price haggling be more common in Macedonia than in The Netherlands.
First the principles of rational economic behavior teach us that we should perform an
action if the benefits derived from that action exceed the costs. The benefits from price
1

haggling are pretty obvious, namely the reduction in price we might get if we haggle.
However as haggling requires time the main cost associated is the usage of the time spent
haggling in the next best forgone alternative, might that be earning some extra money
by working, watching a movie etc. Since the wages in the Netherlands far exceed the
wages in the Netherlands the opportunity cost of time spent haggling in The Netherlands
is higher than the one in Macedonia. Therefore because the costs associated are greater,
the phenomenon of price haggling should be less frequent in the Netherlands.