Well here's the thing, you're both suffering from imperfect information. If the merchant knew exactly how much you're willing to pay (as well as every other cus

Well here's the thing, you're both suffering from imperfect information. If the merchant knew exactly how much you're willing to pay (as well as every other customer) and how his competitors would react to the prices he sets, then he could set his prices perfectly. But he doesn't, so he has to build in a margin which includes things like lower-than-expected sales, returns, and the possible changes in prices from competitors. This all combines to make his advertised price higher than one where he knew the future perfectly. Now the information imbalance in a haggling situation is a bit different. He doesn't have to advertise the price he gives you, and so can worrying less about how his price will influence his competitors, and he knows at exactly what price he will make a sale. Just like with car dealers, if it's late in the month or year he might need to just move inventory and sell at cost. He has more confidence in your behavior so he can use his own operational information more effectively. If you want to know more I suggest reading up on "Imperfect Information Market Failure." It's a pretty fundamental thing in economics.