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Buying Power

Jim Wasserman  |  March 5, 2020

IF YOU TOOK an economics class in high school or college, you might see its usefulness as limited to helping with your grade point average. But the basic ideas you learned can still be valuable. Take this introductory microeconomics question: In a typical transaction, who has more power, the buyer or the seller?

When I started teaching economics many years ago, I gave the nod to buyers. Invoking the notion of “consumer sovereignty,” I’d explain to students that buyers have the power to vote with their feet—by walking to another store. Buyers can also change tastes quicker than sellers can change their wares.

That was a long time ago, however, before the internet. Now the balance of power is more even and perhaps tipping the other way. If you don’t buy something, there’s somebody a thousand miles away who might, thanks to online shopping.  That said, we consumers still have two powerful cards to play, as we strive for the upper hand in getting the goods and prices we want:

Make yourself an elite customer. Think of it as a numbers game. When there are heaps of students seeking the services of a university, the university is free to pick and choose. That compels potential students to dress themselves up, participate in high school extracurriculars and do all sorts of primping to make themselves attractive customers.

If students, however, are already prime potential customers—perhaps they’re at the top of their class or they’re star athletes—what they have to offer as a client is now scarcer than the university’s number of open spots. These students, in effect, join a sub-group of potential customers that the school will now court, offering scholarships and other inducements to get their business.

This notion holds true beyond college. Offer to pay cash at the antique store and the seller is more likely to accept your low-ball offer. Bundle a bunch of remodeling projects into one job and contractors will bid more vigorously for your business.

Similarly, maintain a good credit score, and banks and other lenders will flood you with offers. The irony of today’s system: Those who don’t need a loan are more likely to be offered one—and at the best rates, to boot.

Expand the pool of sellers. The second strategy is to be flexible in what you want. Houses are a good example. Suppose you want a home with a certain amount of space, in a certain area and with certain amenities. If you make your list and demand them all, the list of potential homes can get very small. If, however, you divide your desires into “must-haves” (good school district) and “would be nice” (swimming pool), the number of available houses increases, giving you the ultimate power in the negotiation—which is the power to walk away.

Want to get a good deal? Before negotiating or before walking into a store, consider how to use these two methods. What would make you an especially attractive buyer? What’s your walk-away price? Know that, and you’ll have the upper hand.

Jim Wasserman is a former business litigation attorney who taught economics and humanities for 20 years. His previous articles include Weighty Decisions, Scenes From a Life and Changeup Pitch. Jim has published a three-book series on teaching behavioral economics and media literacy,  Media, Marketing, and Me. His latest book is Summa, a children’s story for multiracial, multi-ethnic and multicultural families. Jim lives in Granada, Spain, with his wife and fellow HumbleDollar contributor, Jiab. Together, they write a blog on retirement, finance and living abroad at YourThirdLife.com.

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