Open Negotiation: The Back-End Benefits of Salespeople's Transparency in the Front End

Negotiations today are less likely to be characterized by information asymmetry-the notion that buyers are less informed than sellers-due to the amount of information available to buyers. A number of industries have reacted to this change by shifting their attention to earning profits in aftermarkets: products and services that augment the main purchase (e.g., add-ons, insurance, financing, service and maintenance). In these aftermarkets, firms often retain an information advantage, even if information asymmetries are eliminated from the main purchase. This has given rise to an interesting setting untapped by prior research: information "symmetry" in the front end (main purchase) and information "asymmetry" in the back end (aftermarket). The authors argue that symmetry in the front end provides an opportunity to build trust, as the knowledgeable customer can verify the information disclosed by the seller. In an observational study in the automotive industry, the authors find that customers to whom the salesperson revealed the cost of a car at the beginning of the negotiation spent significantly more in the back end than others. As corroborated in subsequent studies, this effect holds only when cost is disclosed at the beginning of the negotiation and when customers can verify the cost information.