Friday, March 6, 2009

Is bargaining anti-capitalistic ?

Let me indulge a bit more in some economic ranting while I am still on holiday.

It is easy to verify the fact that bargaining is most popular in those places the less developed in terms of capitalism, and the more a country will "progress" in accepting the principles of modern capitalism, the more the activity of bargaining will disappear. It may almost seem like paradox, but is it really one?
I come to think of a possible explanation for this phenomenon, whether it accounts totally for it or only partially can certainly be a matter of debate.

Bargaining is properly a confrontation between one offer and one demand, it is a highly individualistic process. Despite that the offerer can back his side of the exchange by a direct reference to the overall demand for the specific product, and on this ground he will argue for a higher price than the customer is ready to pay. On the other hand, the customer can argue that this overall demand is merely virtual, projected, but ultimately unrealized in the very short term, while his present buying of the goods means immediate, actual money for the seller.

That's how it used to be in traditional societies, in those areas where the exchange of goods was falling beyond the reach of the despotic rulers. It seems odd then to think that an extension of the domain of free exchange(Capitalism) has entailed a quasi disparition of bargaining.
Bargaining assumes that the price of a commodity is open to debate, it is not a static given of the transaction, on the contrary, it is a dynamic component of it. Opposite to this, obviously lies the principle that any given commodity has a fair ("natural") price. If nowadays, a customer intend to bargain, the selling person(who is likely to work for a salary, not even indexed on his selling performance) can simply reply, that the price displayed is already the optimal price, and that there is nothing better to hope for.

One may then say that the almost disappearance of bargaining is simply an effect of the mass-consumption and the bureaucratization of the modern world, and that it has nothing to do with Capitalism, I believe Schumpeter[1] may disagree with that with regard to the origins of modern bureaucracy, that he saw as a manifestation of the rationalization of the economic and social life (the latter being largely conditioned by the former in a capitalist system).
So, even if bargaining could have survived the rational theory of commodities exchange that has developed after Ricardo, and evolved into the neo-classical theory, and its widespread acceptation by our societies, it seems difficult to imagine that it could have survived its multifarious pervasive effects.

I would therefore say that bargaining is NOT anticapitalistic, I believe it is on the contrary, the most genuinely capitalistic activity one can think of: It is the epitome of individual freedom at the level of the most elementary economic transaction, the freedom of agreeing on a price.
Clearly this freedom is not denied in the direct sense of fixing the prices of goods by laws as what may be thought of in marxist-inspired societies, but an indirect influence is just as powerful and much more difficult to identify. Prices are also fixed in modern Capitalism, by sophisticated economic theories about which Georgy Lukacs once said that a statue should be erected for their authors in front of every ministry of economy in the communist countries, because they are the main contributors to the practice of state socialism (I think it is Lukacs, but if someone wants to correct me and can cite the exact quote, I will be happy to correct this post in the sense necessary).

What bargaining is clearly incompatible with, is the ideology that affirms the existence of an objective natural price, in a sense not far from the existence of a natural law. It is that ideology that takes away from the individual negotiation the freedom of fixing the price for an individual transaction.

On a side-note, the sociological dimension of bargaining could also be an interesting topic of discussion. I mean by that the way such an activity exceeds the merely utilitarian aspect of commodity exchanges and may be a strong basis for building or consolidating a network of social human relationships, with diplomacy and common understanding as a basis. Maybe somebody can point me towards some authors who investigate these aspects.

References:
[1]: Capitalism, Socialism and Democracy

7 comments:

ducati998 said...

JP,

Bargaining is most definitely a function of capitalism.

Bargaining, or price discovery, happens in every market, every day.

Commodities, stocks, bonds, real estate, consumer goods, labour...the list is endless.

jog on
duc

Jean-Philippe said...

Duc,

I think there is a confusion: Bargaining and "Price discovery" are two distinct things. Bargaining is a method to find a price, but not all methods to find a price are Bargaining (see http://en.wikipedia.org/wiki/Bargaining). There are many other methods to find a price such as Auctioning, Retail Pricing,...

In particular, bargaining is not the method used to find prices of commodities, stocks, bonds, most consumer goods,...

To clarify a bit, bargaining happens between two individuals, and the price is fixed as the result of a direct negotiation with a clear social dimension. It is not the result of a process involving aggregate demand and aggregate supply.

My point is to say that bargaining as a method to find a price was much more common in the past than it is now.

Cheers

ducati998 said...

JP,

I would disagree.

Take stocks, or bonds, or commodities...there is a Bid & Ask. I can take one, or, enter my own...the bargain is struck if the trade is completed.

Bargaining is price discovery. Take the auctioning of 3G bandwidth a few years ago via Game Theory...

Who buys a house without negotiating? A car?

5% off for cash anyone?

I think your charges for my case are too expensive, would you take $X?

If I take the whole case of X, can I have a discount?

I offer you three pigs and a cow for your daughter?

As to aggregate supply/demand...of course...if I supply you with nuclear weapons, will you sell me all your oil at X? If the deal is struck, what happens to supply, and hence price?

What isn't subject to bargaining is socialism. We'll subsidise X, we'll put a tariff on Y

jog on
duc

Jean-Philippe said...

Duc,

No, you may want to define privately bargaining as price discovery, but it's not what it is for most people.

Bargaining cannot be reduced to the presence of bid & ask, it involves a dispute about the price that exceeds the mere proposal of a price, it has a social dimension where complex arguments may be developed,...etc, this process is what identifies properly bargaining.

Bargaining is still practised in the West for some expensive items, but it used to be much more wide-spread than that, and it still is in some non-western cultures.

You attempt to dismiss the problematic I wish to discuss by redefining bargaining only leads to confuse many activities that have some essential differences.
I am not going to follow you there.

I believe you can see the differences between the activity of bargaining as it is described in the Wikipedia article I referred to earlier and the way most prices are determined in our western societies (especially the way they are for commodities, stock,...).
If you don't want to call this activity(the one called bargaining in Wiki) bargaining, which word would you like to use?
It is this activity that is the subject of my post, call it whatever you want, I don't really mind.

Cheers
JP

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