Haggling over substitutes
Abstract Using a model of substitutable goods I determine generic conditions on tastes which guarantee that fixed prices are not optimal: the fully optimal tariff includes lotteries. That is, a profit maximising seller would employ a haggling strategy. We show that the fully optimal selling strategy in a class of cases requires a seller to not allow themselves to focus on one good but to remain haggling over more than one good . This throws new light on the selling strategies used in diverse industries. These insights are used to provide a counter-example to the no lotteries result of McAfee and McMillan (J. Econ. Theory 46 (1988) 335).