I have a friend who has been staying with me in Beijing (well, really not with me all that much since I am usually elsewhere) for the past 2 months. Yesterday, we went to xiu shui (aka silk alley) together in order to buy some knick-knacks for another friend that just left town today.

Anyway, during the course of our shopping, my friend revealed to me that he's been spending ~15 hours per week simply hanging out at the market and trying to learn the business (a great way to learn Chinese because of the repetitive use of a limited vocabulary). .....and, aparently, he's learned quite a bit. Here's a summary of some of the main takeaways:

-most of the vendors their pick up their merchandise from the same sources inside the building itself. Therefore, most merchants in similar product categories sells the exact same stuff.
-Because restocking is a PITA, morning prices are always higher than night prices.
-Every item has an established clearing price. One good way to determine the clearing price is to talk to at least 5 merchants that are selling the same items and play them against each other (they often collude of course, but this technique is still fairly effective).
-My friend's strategy is to figure out what item x is worth, offer the "correct" price, and stand firm. (This is also my technique, but I tend to quote prices that I think are reasonable rather than taking the time to ascertain the correct price.) In any case, offering a price that is ridiculously low doesn't accomplish as much as you might think because doing so wastes merchants' time.
-A lot of the travel guides instruct shoppers to shoot for an arbitrary percentage (usually 25-33%) of the asking prices and merchants are well aware of this.
-As such, asking prices often have no relation to clearing prices. For example, we bought a jade bracelet yesterday that may or may not have been real. The asking price was y2800. We paid y40. My friend told me that, based on his research on the same product category, 1 in 10 foreigners pay the asking price straight-up. Another 1 knocks off 10-20%. Meanwhile, around 5 pay 25-33% of the total.
-There isn't a whole lot of truth to the myth that foreigners are subjected to higher clearing prices than Chinese (although my personal experinences in Shanghai are somewhat contradictory). Furthermore, Chinese aren't inherantly better bargainers; a good strategy is a good strategy, regardless of skin color or linguistic ability.

I realize that for many people, myself included, the idea of turning a simple shopping trip into something more akin to psychological warfare for the purpose of saving a few dollars is a waste of time. However, I think it's useful to have a basic understanding of the way things work before taking the plunge. Moreover, the basic "know your price" maxim isn't all that time consuming; if you have to tack on an extra y20 to get out in a hurry, so be it.