Consumer is the King, And King never bargains! Part I

This is the philosophy of modern day service/goods providers, at least in many developing cities of India. Bargaining is opposed even before it can begin. This post attempts to trace this emerging[or maybe inherent] concept of anti-bargaining culture, mostly in the 'booming' middle class. It also explains how the notions of consumer freedom, sovereignty, liberty, etc. are merely theoretical deductions to showcase a merrier image of modern society as it is. Finally, it proposes an alternative view to look at consumers and pricing, criticizing the traditional beliefs that price is determined by demand and supply and that profit arises in market exchanges.

Note: This issue will be dealt with, in a series of articles, Part I is presented below.

Bargaining: A crucial feature of market

Bargaining is what brings demand and supply in equilibrium[1]. Demand and Supply aren't some living phenomenons that act and react on their own will. Humans, living and organic, do so. Demand and Supply, just like other economic categories[Capital, Labour, Rent, Profit, Value, Price, etc] is a bearer of 'social production relationships'. In other words, Demand represents 'consumers' and supply- 'producers/sellers'. Hence the popular way of talking about Demand and Supply as some human-independent phenomenon that functions through some magical 'invisible hand'[2] is purely a sophistry.

When Demand exceeds supply, humans, in form of consumers and sellers bargain, take decisions and react, hence resulting in a given price prevailing- where Demand and Supply intersect. This means that bargaining, especially on the side of buyers is an essential element for an equilibrium to occur.

Markets, Perfect competition and Consumer choice:

With the emergence of organized[3] sellers[modern day goods/service providers], bargaining has begun to loose its importance as a crucial characteristic of markets. Indeed, in local markets where many unorganized sellers are present[4], bargaining is prevalent and normal. But in more organized markets and selling centres{cafes, cybers, jewelry stores, large hotels, etc.}, bargaining is of least necessity. Also, with the emergence of the 'booming' middle class whose ultimate goal of life, it appears, is maximizing its marginal utilities, bargaining is deployed carefully, only where one's economic/social status isn't put at stake if she is found bargaining.

This raises an important question:

Is Consumer really the King?

The philosophy 'Consumer is King, and King never bargains' implies that consumers must quitely accept whatever price prevails, and if they do not want to, then may find another place to buy. It clearly is a violation of the so-asserted consumer sovereignty. It merely shows the hollowness of those who proclaim that markets provide freedom through choices, while these choices being decided and established by non-individual factors, or maybe by the sellers themselves. More on this issue later.

We thus understand that when bargaining is made to loose its prevalence and when buyers are forced to accept the prices as given, except of course their right to find some another seller[5], it reduces consumers' decision making ability, her freedom to ask for a change in price which doesn't suit her. 

An industrial phenomenon:

Bargaining being made to look as 'low standard', 'poor' and 'non-king' behaviour is not a special but an industry-wide phenomenon. Many industries such as cyber cafe, precious metals, garments, luxury items, and some more have such a culture creeping in. This means bargaining is made to look as a shameful phenomenon which a consumer must avoid so as to preserve her standard in society. Of course, social and cultural variables too are responsible for this, but when such phenomenons are asserted in stores, malls and shops, it reinforces and multiplies such a culture.

Hence, the options for choosing another seller looses its significance once it is understood that this is not limited to a single firm, but spread throughout an industry. If Consumers cannot bargain, then the notions of consumer freedom are utterly foolish and useless. The worst part is, the consumers themselves accept and reinforce such a culture, which at the end harms their own 'marginal utility'.

References and Notes:

1. It means that when buyers and sellers actively negotiate with each other, only then and then can an equilibrium occur. If, one party were to be completely mum, the price reached would have been dictated by another side, which is against the so-cherished consumer freedom, consumer choice, etc.

2. This obviously is not a reference to Adam Smith. He didn't use the term in the manner that modern day Economists have made it out to be. For more information on this issue/controversy, refer here. Of course this blog of Mr. Gavin Kennedy is plagued with all sorts of fallacious thinking about Karl Marx and his economics, it still defends Smith well, and is a worth looking at apologetic of Smith.

3. The term "Organized" here is meant to signify far more institutionalized, coordinated and centralized sellers. For eg. cyber cafes, branded garments sellers, etc. 

4. Such as mandis, local vegetable markets, grocery stores, local bazaars{eg. of electronics} and so on. 

5. This option is superficial as explained in the next part, because it is an industry-wide phenomenon. Some exceptions might exist, but only rarely.