If Smith, Father of Economics, were alive and you asked him to list out the places where laissez-faire is in full swing today, our own New Road would’ve certainly found a place in his list.[break]
Except for the notorious gudpak affair – where the government did intervene, much to the consternation of local laissez-faire adherents – New Road would’ve vindicated Smith against his detractors’ claim that unfettered markets are detrimental to public welfare.
As a shopkeeper in an unfettered market, your goal is to exploit the naiveté of a customer and wriggle out as much money as possible from his wallet. So the price would depend not on rational calculation of costs that goes into bringing products into the market but on a shopkeeper’s evaluation about how much a customer would be willing to fork up, his judgment in turn based on how the customer is dressed; his display of confidence (meaning he is loaded!); whether he’s a local or an outsider; etc.
A friend of mine who owns a clothing shop recounted with glee how he once fleeced a customer. “I sold a jacket that cost Rs 800 for Rs 3,500.”
When I said it amounted to looting, he said coolly, “It’s not like I put a gun in the customer’s head.”
Finding me unconvinced, he explained, “Look, he was an outsider who was in town solely for shopping, which meant he was obviously loaded with cash. Since price is no problem for him, quality would be his main concern. Such a customer will never buy a product if you quote a low price, even if it’s of good quality. Only if you quote a high price, he’ll look at the product with some respect and may even buy it.”
Then my shopkeeper friend went on to explain other factors that compel him to be opportunistic rather than sensitive about ethics.
“I’m not just selling products here. I have to pay rent and salaries. In addition, customers want variety but not all the products we have get sold. So who pays for the items that are never bought, or for the ones that get damaged over time?” he said.
Gradually, the rationality behind the irrational pricing was dawning on me. It seems there’s even a term that loosely explains such hedging against risks. It’s called contingency costs, defined as an amount added to an estimate to allow for uncertainties that will likely result in additional aggregate costs.
The result of that discussion is that now I don’t hesitate or feel embarrassed to enter into ruthless negotiation with shopkeepers.
The secret behind securing a good bargain, except in the case of branded showrooms where rates are fixed, is that you should learn to enjoy negotiations more than actual buying.
In order to survive the vagaries of liberal market, you must develop a set of skills you can wield no matter which side of the counter you stand. From buyers’ perspective there’s always another shop but for most shopkeepers every customer is what they call a murga, a chicken that must be slain (read sold to) at all costs, else he’ll leave behind a trail of bad luck that’ll hang on in the shop throughout the day. In a market that works as per laissez-faire principle, a triumphant buyer is the one who leaves behind a long-faced shopkeeper while a happy shopkeeper is the one who makes a customer grudgingly pay whatever price he demands.
So, as a buyer, when I go out to shop, I make sure that I have enough time to check out as many shops as possible. This once, my wife and I were out to buy a bag for her. We liked a bag in the first shop we entered. The lady at the shop said the price was Rs 2,500. But after some haggling, she came down to Rs 1,800. We left the shop telling her that if we didn’t find anything as good, we would be back. Coincidentally, we found a similar bag at another shop. Even before we entered into negotiation, the lady said, “That’s for 1,700.” After a little negotiation, we got it for Rs 1,500.
How much did we save? If we consider the first price the lady at the first shop quoted, we saved Rs 1,000.
Though we were delighted to have clinched a great bargain that day, the price difference at shops only two blocks apart made us aware of how close we were of becoming the victims of New Road laissez-faire.
The writer is a copy editor at Republica and can be reached at amendra pokharel@gmail.com
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