Bargain or Post the Price?∗

This paper studies the choice between two modes of trade: selling at a posted price or bargaining. It is shown that the choice of one of the regimes may be a signal of quality of the good, otherwise unobservable to the buyer. The main insight is that the two modes can coexist on the same market. Two alternative specification are considered, different in whether sellers strategically choose the quality of their good or not. 1 Introduction. This paper studies pricing behavior of sellers on markets where not only price but the trading rule is a choice variable. The question that is addressed here is why some retailers choose to post the prices of their merchandise and others choose not to post prices, but instead bargain with potential buyers