I just pay whatever they ask without fishing for a discount. When they offer a discount I tell them that’s really not necessary and I’m happy to pay full price. But if they keep insisting, I will take the discount, not going to argue over that.

I disagree with the paying more, that could well be interpreted as offensive, as it makes it seem they need a handout. Just let them set the price and don’t beg/demand/fish for a discount.

Why are those the only two options?

I think this is really situational. In a store, I’d say you should pay the list price, but it’s more nuanced with other types of businesses. As an example, what if your friend is a contractor, but they’re a bit more expensive than a competitor, and you need work done?

If you hire the competitor, it creates an awkward situation, but you don’t want to pay more. The conversation can easily go:

• “I need someone to do this job.”
• “I’m a contractor, I can do it.”
• “Money’s a little tight right now, and you’re a bit more expensive than your competitor.”
• “We’re friends, I’ll do it for their rate.”

You haven’t asked you friend to give a discount, nor did you ask them to do it for free. You both did each other a favor - you got the work done at the cheaper rate, and your friend got the business that might have gone to their competitor. If the friend doesn’t want to give the discount, they have an easy out: “Oh, no problem! [Competitor] does good work.” On a similar token, they don’t feel like you went around them.

Pay normal price. Turn down the offer of a discount, to not seem cheap. if they offer it again, take it - to not seem rude

I wouldn’t necessarily expect a discount, but I certainly wouldn’t refuse one unless I’m doing better financially than my friend (which is unlikely). Paying more than asked? I’d have to do much better financially than my friend, which is extremely unlikely.