Consumer surplus is what you make of it

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Will Wilkinson doesn't like haggling:

I hate it. I am terrible at it. As a consequence, I bought nothing in Turkey other than tickets to various things, room, food, and a poster of Ataturk. And I overpaid for all of these things, I’m sure, which has left me a bit bitter about the place. Surely this is inefficient overall, no? I understand the price discrimination argument for haggling, especially in a country with a lot of poverty and tourism. But probably hundreds of my dollars stayed in my pocket because I didn’t have good information about the quality of products and I knew the retailer is better at bargaining over the surplus than I am, so… there was no transaction and no surplus.

I can't help but hear the voice of Tyler Cowen echoing in my head:

It is you people, you who resent Coase (1972), you people who induce wage and price stickiness and widen the Okun gap. You people, who don't know what it means to sit back and enjoy your consumer surplus. You beasts!

I weep for Will's missed opportunity. I too have haggled in Turkey, and I have a feeling I'm pretty bad at it. I bought a rug that I am sure could have been obtained for less money if I were a sharper dealer. Who cares? The rug was good wool, had tight knots at the back, and I really liked the design. The important thing was not what it was worth to a Turk; it's what it was worth to me. Which is, a lot more than I paid for it. Most of what is bought in Turkey by tourists is cheap clothing and decorative goods that can be readily visually inspected.

It is only right and natural that we should want to maximize our consumer surplus. But as long as you are getting consumer surplus, you should make the deal. Besides, "one price" is no guarantee that you are getting a good deal. It saves time and lets you free ride on the judgement of others, but Consumer Reports, and America's livingrooms, are full of evidence that their judgement isn't always particularly good.

To be sure, I should not have bought a beige rug. But I still love it. And I'm still wearing the earrings I bought in Greece despite the fact that I know nothing about gold jewelry.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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