Organization and Bargaining: Sales Process Choice at Auto Dealerships

This paper examines how firms' organizational form affects prices negotiated. Negotiated prices are one factor determining whether a vendor or customer captures the value from a transaction. Firms that systematically negotiate more effectively capture more value. Research has investigated individual‐ and market‐level determinants of negotiation outcomes, but little has been done on the firm‐level determinants of negotiated prices. I present a first look at one feature, sales process: whether salespeople handle the entire sale in parallel or customers begin with less experienced salespeople who can escalate difficult assignments. I model firms' choice of sales process as a biform game and test predictions of the model using a combination of transaction‐level data on new car purchases in the United States and a unique survey of dealership management practices. I find that a serial process has implications consistent with improving firms' bargaining power and reducing customers' outside options.This paper was accepted by Bruno Cassiman, business strategy.