Economics homework help.
The following is a classic distributive bargaining scenario, wherein each party is attempting to maximize their gains at the expense of the other. In this situation, Michelle is interested in purchasing a Toyota Highlander. Michelle has two dealerships to choose from (Toyota of Louisville and Green Tree Toyota). Although she has no desire to travel a long distance, there are dealerships in Cincinnati, Ohio and Indianapolis, Indiana that she could represent as alternatives as well. Michelle decides to visit Toyota of Louisville first and finds the vehicle she wants – a 2013 Toyota Highlander.
The Manufacturer’s Suggested Retail Price (MSRP) for the vehicle is $29,865, while the factory invoice (the price paid by the dealership for the car) is $27,929. While Michelle only knows the MSRP for the vehicle, the dealer knows both the MSRP and the factory invoice price. Michelle has a trade-in, but she is unsure of whether or not to let the dealer know this, as she is unsure of what impact this will have on the dealer’s initial offering price.
1. What should Michelle’s negotiation strategy be (e.g., how much information should she share concerning where she is in the buying process, that there is a vehicle trade-in, that she is looking at other dealerships as well, that she knows the MSRP, whether and how much deception is ethical/allowable, etc.)
2. What do you expect the behavior of the salespeople to be when Michelle visits the Toyota dealership?
3. Develop a negotiation plan, including the characteristics of the opening offer, reservation price, tactics, tradeoffs, they should make, how to react if the seller bring up issues before you are ready to discuss them (such as whether you have a trade in vehicle). Do you have a Plan B if your original plan becomes untenable?