The competitive implications of a “no-haggle” pricing strategy when others negotiate: Findings from a natural experiment

Abstract

While the prices of many products such as automobiles, boats, jewelry and musical instruments are commonly negotiated, many firms have been offering their consumers the option to purchase at a fixed price. This research examines the impact of a firm's choice of a no-haggle, fixed price policy in a market where its competitors continue to negotiate. Using the automobile manufacturer, Toyota Canada's Access Program as a context, we find that unilaterally introducing a fixed price policy led to higher prices for both the fixed price firm and its closest negotiating competitor in the family car market. Despite the price increase, sales remained unchanged. For the entry level models, however, prices remained the same but sales experienced an increase. As competitors could have followed suit and introduced a fixed price policy, this suggests the possibility of an asymmetric price-policy equilibrium in the market. After ruling out alternative explanations, we conclude that the effects on prices and sales are due to the unilateral move to a no-haggle price that allows Toyota to differentiate itself from its competitors.