After you survive the attack in the house, make sure you still have the incendiary grenade from upstairs. When you see the Merchant, look at his eyes with a rifle. If they are red, throw the incendiary grenade at him. He will scream like one of the male villagers does when you throw an incendiary grenade at them. Note: In different areas the scream will be different. For example, at the island he will scream like a soldier.