I negotiate deals for a living (sort of like haggling...).

Souvenir market haggling is more of an art than a science.
I sympathise with most of the tips offered above.
Some thoughts:
- There are no hard and fast rules about what percent to coutner with.
- Markets where there are multiple sellers selling the same thing, and where there are mostly local shoppers as opposed to a tourist-friendly bazaar, are by far the best. (i.e. avoid the Little India night market in Kuala Lumpuir, avoid buying anything in Tangiers Morocco, avoid buying things from stalls set up right near or in tourist attractions, and DEFINITELY avoid shops that your organised tour or tour guide takes you to, especially if there are no competitors around, etc..)
- If time is not an issue, you can never know too many competitors price points. Just about all souvenir-like products of interest to travelers are usually available from many sellers, usually in more than one location. I never buy from the first or second seller. At a minimum I buy from a third, and only if I have a rough idea of what a product should cost. I usually like to get an idea of value for the same product from multiple markets locations ( some entire markets can have a group mindset of high markups)
- Depending on the circumstances, I use different approaches - either hard grinding, (with a bit of theatrics/white lies such as what someone else offered for the same product elsewhere - but only if I'm sure of competitor prices) or the friendly approach if I feel like the seller is starting with a very reasonable price.
- Always bargain in the local currency. This goes without saying.
- Consider pretending like you're from a non-North American/non-European country - and definitely not from the USA. I.E. If you're white, pretend you're from an east european country (though not Russia as a lot of sellers know Russian in places like Sinai, Israel, south east Turkey, Italy, Greece, Harbin in China, etc..)
- A good rule of thumb is to know the approximate value of some commodity/fungible souvenirs - so you can compare how high each seller's opening price for the same commodity souvenir is. This will give you an idea of their general pricing approach. I.E. A small commodity souvenir fridge magnet should cost between 0.5 and 1.5 USD, depending on the locale.
- If you feel very confident based on knowing prices that one seller is giving you extremely reasonable opening prices, tell them you realize they are beign reasonable and that you appreciate it and trust them. Establish rapport and buy a lot of products from that seller (but you have to be SURE he 's not gouging). I once had such a seller in Amman, Jordan. Having looked around before, I KNEW that this guy was giving me really really good prices. I bought maybe two dozen things from him. At one point, after agreeing to a price on a product and paying him for it, he gave me back an amount with a smile saying I had overpaid on that last item. It was confirmed to me that he wasn't gouging me because later he told me I had to leave as the shop was closing down for the night - even though I was about to buy more things.
- There are tons of ways to establish rapport with someone who you KNOW is giving yougood opening prices - knowing a few words in the person's language is a good way (like "yalla Khabibi" in Arabic).
- Looking unique things up on Ebay, particularly from sellers located in that region, is a good trick for higher prices items.
- Some countries have fixed price stalls/stores for souvenies - use that price knowledge when bargaining for objects that are hard to assess.
- Avoid carpets and other opaque things whose quality/value is extremely difficult to assess for you. Those are the ones with the higher margins for sellers - as they can insist on huge markups (i.e. 1000% or more) and often enough get a tourist to agree to that price. They know you can't assess true value.
- In Morocco where sellers are EXTREMELY aggressive/persistent, the only line that worked for me to instantly get rid of a persisten seller (I was a man shopping on my own)was to say, "My wife is not with me right now, I can't buy anythign without her - but I would like to get an idea of your price for this". A lot of male sellers instantly sympathised with that - as it's common in Morocco (and likely other Maghreb countries) for husbands not to buy anything without a wife's approval.

- About feeling guilty. I too had that "moment" where I started to question why I grind sellers so much. I now pay close attention to who is a professional seller or an employee of a stall owner, and who is just someone on their own peddling household things. My own father had to sell household things on the streets for a few months when I was younger and he had to sell a family heirloom to a pawnbroker.
I still grind professional sellers though, and very occasionally feel some guilt when the amounts haglled over are low (a dollar or so).
I had a couple situations where I was essentially taking advanatge of a seller's ignorance. One in India stands out. (It's complicated to fully explain, it involves someone who didn't fully understand English and mistakenly agreed to a price below-cost, but then did not dare speak up to me and my friend to get his fair cost because we were foreigners and my friend was yelling about it.)
One of the only episodes about which I feel really guilty is in Nepal. I saw a sadhu couple ask a tourist couple for 10 rupees (about 10 US cents) to allow them to take a photo with them. When I approached to get my photo taken with the sadhu couple, they asked me for 20 rupees (about 20 US cents). I didn't do the conversion right in my mind and I thought at the time that they were asking me for 2 USD instead of 1 USD. I made a big deal about the other couple having paid less. They agreed to 10 rupees. Then when time came to pay, they asked for 20 rupees again gesturing that they needed to eat. Thinking that they were not following through on their promise (which they weren't) and thinking it was 2 USD versus 1 USD (rather than 20 cents versus 10 cents), I made a scandal about only agreeing to pay 10 rupees, in the presence of other foreigners. I ended up paying 15 rupees, and only later after I stormed away did I realise that I was yelling at dirt-poor sadhus (i.e. people who took a vow of poverty) in front of foreigners over literally one dime when they were gesturing that they needed to eat!

When I grind too much, and the seller starts complaining earnestly (you can sometimes see it in their eyes) about the cost of their rent being high, I usually stop grinding and just accept their last price - assuming it's reasonable.

I try not to waste sellers' time too much if I will not buy, i.e. I dont enter negotiations if I have no intention of buying.

BTW, I appreciate the ethics lesson from uszkanni - it's interesting.