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Optimal selling mechanisms with buyer price search

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  • Lu, Jingfeng
  • Wang, Zijia

Abstract

We study optimal dynamic selling mechanisms in a two-stage model where the buyer can search for a better price at the second stage. When this outside price is public, the optimal selling mechanism takes the form of a fixed first-stage price with price matching in the second stage. In contrast, when the outside price is the buyer's private information, the optimal mechanism is a menu of two contracts: a first-stage sale at a higher price with immediate delivery, or a first-stage sale at a lower price with second-stage delivery. Thus the optimal form of search deterrence depends on the observability of the buyer's outside option.

Suggested Citation

  • Lu, Jingfeng & Wang, Zijia, 2021. "Optimal selling mechanisms with buyer price search," Journal of Economic Theory, Elsevier, vol. 196(C).
    • Handle: RePEc:eee:jetheo:v:196:y:2021:i:c:s0022053121001241
    DOI: 10.1016/j.jet.2021.105307
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    Cited by:

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    More about this item

    Keywords

    Dynamic mechanism design; Outside option; Price search; Price matching; Search deterrence;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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