The formulas are as following. Having merchant skill on its own gives you 7% discount and each point gives additional 3% (exprt gives 4% per point and Master - 5% per point). So in example, with Merchant skill 5 at expert you would have: 7+4*4=23% discount.

There are caps. You can's sell anything for higher than nominal price (listed in item's description on right-click), or buy it for lower than that. Each shop has its own price class (there are 5 different price classes - multipliers to nominal price of items). E.g., new Sorpigal has shops with 1st price class, which is lowest multiplier. It means that with low Merchant skill, if you are low on money, it is better to use Sorpigal's shops for all the business stuff (except general store, one which sells bottles and herbs and has sign with Barrels in front of it - you will get 50% penalty for selling anything there).

There is hard cap on merchant skill (as it also affects identify, repair and training costs) - it can't lower price more than 3 times. This cap is at 12 Master in Merchant skill.