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Bargaining in China

Try shopping in China. Trying not to get ripped off will take up most of your time. Even if you know the real price, and are a good bargainer, it still takes forever.

Since there aren't prices on most things, the seller will take a look at you and take a guess at your price based on how you look and act; if you're visibly in a hurry, you'll be quoted a higher price. And even if you are totally calm, you will need to put in the time to convince him that you are for real.

Sellers are maximizing income

In poker there's a theorem that says that when playing against someone, the bigger mistake they make, the better it is for you. It's the same in pricing - the more you rip someone off, the better as a seller - as a buyer, it's not exactly the same (because value is different for buyers)

So the seller's strategy is to make people make the maximum mistake. Mistakes happen for a few reasons:

#. having lots of money and not caring #. being in a hurry, #. not knowing the real price of an item. #. spending someone else's money

Yaxiu & Pan Jia Yuan

These are two markets - the first is for foreign tourists to go to buy fake clothes at a sort of bargain compared to home, but way more expensive than they should be. Pan Jia Yuan is a huge antique market / flea market.

In these environments, the mistakes people can make are so huge, that sellers are all going for the longshot - one foreigner making a big mistake is much more profitable than lots of people buying things for slightly more than their real price.

If the real price of an item is say 1 euro, it could go to a foolish european tourist for 100 euros, or it could go to a local for 5 euros.

If you look like a european tourist, even if you know that he would sell it for 5 to a local, your job is going to convince him that you really aren't going to buy it for 100. That you aren't just bargaining for fun, and be planning to buy it in the end. But, tourists also try to convince him of this - so the seller needs to be perceptive. If you are really a tourist, your actual price might be 100 - or 80. And he should resist to the end. But if you are a local, your real price is actually 5 or 10.

It's a huge mistake for him to give a low price to a tourist (even if it's a profitable transaction).

It's a much smaller mistake for him to miss a (small profit) sale to a local .

Therefore, it makes economic sense for him to be very resistant to the idea that a foreign face is actually a local foreigner, not a tourist - even in a 50/50 case, because the profit is so much greater to the tourist, he should err on that side.

This makes sense in tourist areas - but this same idea is used everywhere, in every type of market. This makes it a major pain to buy things here, because everyone is going for the longshot with you.

Strategies

Because the seller is always analyzing you, it's important to get him to give up the hope that you are going to do something really foolish. The ways to do this are - speak some Chinese, so he knows you're not totally new here. Look poor, so that he knows you might have more sense than money. And don't seem too interested in anything - if you are, he will hold out hoping that you'll come back later. If you sit down inside the shop, or engage in a friendly way with the seller, you lose a lot - you now are committed. They also try to get you to hold onto the thing and feel like you possess it - trying to engage the "I don't want to lose this" feeling rather than the "I don't want to lose my money" feeling.

In a place like Pan Jia Yuan, the first item you ask the price of is important - get that out of the way asap. Start engaging with them, asking prices for a lot of stuff to get a range.

I favor asking the price of a few items, one of which you're interested in, pretty fast - if you delay, you will be overcommitted to that item and the seller will take a longer shot with you since you won't be able to walk away.

Being able to walk away

If you can credibly walk away, you have a huge advantage. That's why for example, you are going to get ripped off if you lug a really heavy item into a pawn shop - he's going to know you don't want to carry it back out. It's also why you can't really bargain for a hotel when you are sweaty and tired just getting off of a train - they know you're stuck. If you leave your stuff outside and just breeze in to check the price, you'll be quoted a lower price.

Another strategy?

A complex strategy is trying to interact with other buyers as they are bargaining. If the other buyer has put in the effort to knock the price down, the buyer can't credibly quote you a high price while the other guy is standing right there. So maybe if you notice someone bargaining for a long time, you can go up and get the price while saving all the effort.

caveat

(In this discussion I am ignoring signaling by sellers - they are also reluctant to take low profit transactions because it would give away information to buyers who might overhear, or neighboring shops, or make them look bad socially)

Lack of Price Tags

In order to allow this type of flexible-pricing system, most markets don't have marked prices on items.

The Frustration

It is to the point that buying anything like this is such a pain, and requires so much investment of time, that people are actually buying less. Plus, there is a percentage of locals who don't like bargaining, and avoid markets because of it. One reason taobao is so successful is because there is direct price competition again, and marked prices.

The Opportunity

In a market like panjiayuan, or buy nao hui, with literally thousands of people selling junk, the niche of people who don't like to bargain is large enough that if a single store just marked prices, and didn't harass customers, they could actually make more money than by using the longshot strategy. In the above example, although they would always make the lower amount of money per transaction, since they'd be siphoning off the non-bargainers from the entire huge market of bargain-only shops, they could come out ahead.

Yet

This never happens! Nobody marks prices. Nobody in markets puts up signs saying "fixed price, browse freely and we won't bother you". Although every store tries to portray themself as your friend, none of them put real policies (evidenced by hard-to-remove signs) to signal that they are a low-profit, long term relationship type of store.

Just a few price stickers would have a ripple effect throughout the market - suddenly, there would be a much better way for people to get information about prices, and it'd have an effect throughout the market, reducing the number of free floating foolish people, and letting more people compete on real prices, rather than everyone going for the longshot.

Why?

Places like yaxiu are actually fake markets. There are rules and agreements in place between all the sellers about how to behave, put in place by the rental agency which owns the whole thing. Some of the rules for all stores are posted on the walls in the back. I bet that not having marked prices is one of them (maybe unofficially). They also probably have known & accepted minimum prices for various items (even if they break it sometimes, it's an anchor point) Of the other big markets, buy nao hui is somewhere in the middle - there are outside competitors nearby. And Pan Jia Yuan is so large and chaotic, especially the flea market side, that it's probably pretty hard to enforce discipline in general (although for particular types of items there is probably lots of collusion)

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