Research Details

Abstract

The internet has enabled buyers to much more easily gather information prior to negotiating with sellers. As a result, negotiations in many settings are less likely to be characterized by information asymmetry, or that sellers hold private information that buyers don’t have. A number of negotiation-based industries have reacted to this change by shifting their attention to earning profits in aftermarkets: products and services that augment the main purchase (e.g. add-on items, insurance, financing, service and maintenance, etc.). In these aftermarkets firms often retain an information advantage, even if information asymmetries are eliminated for the main purchase. We use this setting of information symmetry in the ‘frontend’ (main purchase) and information asymmetry in the ‘backend’ (aftermarket) to conduct research that has not been considered in the literature so far. We argue that the symmetry in the frontend provides an opportunity to build trust, since the knowledgeable customer can verify the accuracy of information disclosed by the seller. Across one observational study and two experiments, we show that disclosing sellers’ cost at the beginning of the negotiation, by revealing the manufacturer’s invoice of the product, builds trust in the frontend, which pays off in the backend. In an observational study in the automotive industry, we found that customers to whom the salesperson revealed the invoice price at the beginning of the negotiation spent significantly more in the backend and were more likely to come back for service a year after, compared to those to whom the invoice was either revealed later through the negotiation or not disclosed at all. Since our observational study does not allow us to draw a causal conclusion, we replicated these findings in a simulated negotiation experiment (study 2) and a scenario-based experiment (study 3). This also enabled us to test moderators and the mediating role of trust.

Type

Article

Author(s)

Michael Ahearne, Sebastian Hohenberg, Florian Zettelmeyer

Date Published

2020

Citations

Ahearne, Michael, Sebastian Hohenberg, and Florian Zettelmeyer. 2020. Open Negotiation: The Backend Benefits of Salespeople’s Transparency in The Frontend”.