Levmore and Fagan, ‘The End of Bargaining in the Digital Age’

Abstract
Bargaining is a fundamental characteristic of many markets and legal disputes, but it can be a source of inefficiency. Buyers often waste resources by searching for information about past prices, where a seller already holds that information. A second – and novel – source of social loss is that some buyers will avoid otherwise beneficial bargains because they recognize the seller’s advantage in any haggling match, and avoid sellers with negotiable prices. Similarly, parties might decline to accept settlement offers because they sense some disadvantage. This Article argues for mandated disclosure of past prices, and occasionally settlements, where these have been negotiable. The rule requires uniform or transparent pricing, where uniformity means that customers know that a price offered to them is the same as that offered to others, and transparency refers to the disclosure of past sale, or settlement, prices. The rule is applied to markets where consumers presently haggle with professional sellers, including the sale of medical services to hospital patients, law school merit scholarships offered to prospective students, and legal services sold to non-business clients. We additionally explore its potential in employment relationships, where it might be deployed to reduce male-female pay disparities.

A requirement of uniform or transparent transactions can limit a seller’s ability to price discriminate. There are a few markets in which price discrimination is desirable, sometimes to deliver important goods such as life-saving medicines and clean water. We demonstrate how those markets can be preserved alongside a requirement of transparency. Drawing on a variety of examples, including familiar disclosure rules in contracts, as well as compulsory licensing in copyright and the utmost good faith doctrine in insurance, this Article shows that law is conceptually equipped to address the social loss generated by duplicative search and other inefficiencies, and that pricing disclosure rules can be easily implemented, especially as markets increasingly digitize.

Levmore, Saul and Fagan, Frank, The End of Bargaining in the Digital Age (October 31, 2017). Cornell Law Review, forthcoming; University of Chicago Coase-Sandor Institute for Law and Economics Research Paper No 820.

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