Abstract

In many service contract settings, sellers may impose a surcharge on previously agreed-upon prices. We investigate the implications and drivers of such hold-ups. We experimentally study different market structures and social norms concerning price transparency and fairness. Our findings indicate that while surcharges are lower in ultimatum bargaining than with price competition, the overall prices (including surcharges) are higher. Across market structures sellers care at least as much for price transparency as for fairness. We discuss implications of these findings for the design of markets with surcharge opportunity.

Co-author : Ernan Haruvy and Matthew J. Walker

Practical information