Trading mechanism selection with directed search when buyers are risk averse
AbstractWe endogenize the trading mechanism selection in a model of directed search with risk averse buyers and show that the unique symmetric equilibrium entails all sellers using fixed price trading. Mechanisms that prescribe the sale price as a function of the realized demand (auctions, bargaining, discount pricing, etc.) expose buyers to the “price risk”, the uncertainty of not knowing how much to pay in advance. Fixed price trading eliminates the price risk, which is why risk averse customers accept paying more to shop at such stores.
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Bibliographic InfoArticle provided by Elsevier in its journal Economics Letters.
Volume (Year): 115 (2012)
Issue (Month): 2 ()
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Web page: http://www.elsevier.com/locate/ecolet
Directed search; Competing mechanisms; Risk aversion;
Other versions of this item:
- Selcuk, Cemil, 2011. "Trading Mechanism Selection with Directed Search when Buyers are Risk Averse," MPRA Paper 36224, University Library of Munich, Germany.
- D4 - Microeconomics - - Market Structure and Pricing
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
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