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Asking Price and Price Discounts: The Strategy of Selling an Asset Under Price Uncertainty

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Author Info

  • Tapan Biswas

    ()

  • Jolian Mchardy

    ()

Abstract

We consider fixed and asking price strategies in the context of selling an asset with Bernoullian updating of the seller’s subjective probability of sale at a given price. The determination of optimal fixed, asking and endogenous reservation prices is discussed under risk-neutrality and expected utility maximisation. With risk-neutrality, the optimal asking price exceeds the optimal fixed price when the expected gain is a strictly concave function. The seller’s choice between the fixed and the asking price strategies depends on several factors: the expected cost of haggling, price competition and the seller’s attitude towards risk. Copyright Springer Science+Business Media, LLC 2007

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File URL: http://hdl.handle.net/10.1007/s11238-007-9031-9
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Bibliographic Info

Article provided by Springer in its journal Theory and Decision.

Volume (Year): 62 (2007)
Issue (Month): 3 (May)
Pages: 281-301

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Handle: RePEc:kap:theord:v:62:y:2007:i:3:p:281-301

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Web page: http://www.springerlink.com/link.asp?id=100341

Related research

Keywords: fixed price; asking price; price discounts; reservation price; risk attitude;

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References

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  1. Biswas, Tapan, 1983. "A note on the generalised measures of risk aversion," Journal of Economic Theory, Elsevier, vol. 29(2), pages 347-352, April.
  2. Thanassoulis, John, 2004. "Haggling over substitutes," Journal of Economic Theory, Elsevier, vol. 117(2), pages 217-245, August.
  3. Telser, L G, 1973. "Searching for the Lowest Price," American Economic Review, American Economic Association, vol. 63(2), pages 40-49, May.
  4. John G. Riley & Richard Zeckhauser, 1980. "Optimal Selling Strategies:," UCLA Economics Working Papers 180, UCLA Department of Economics.
  5. S. Christian Albright, 1977. "A Bayesian Approach to a Generalized House Selling Problem," Management Science, INFORMS, vol. 24(4), pages 432-440, December.
  6. Horowitz, Joel L, 1992. "The Role of the List Price in Housing Markets: Theory and an Econometric Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(2), pages 115-29, April-Jun.
  7. Zuehlke, Thomas W, 1987. "Duration Dependence in the Housing Market," The Review of Economics and Statistics, MIT Press, vol. 69(4), pages 701-04, November.
  8. Rothschild, Michael, 1974. "Searching for the Lowest Price When the Distribution of Prices Is Unknown," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 689-711, July/Aug..
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Cited by:
  1. Egozcue, Martin & Fuentes García, Luis & Zitikis, Ricardas, 2012. "An optimal strategy for maximizing the expected real-estate selling price: accept or reject an offer?," MPRA Paper 40694, University Library of Munich, Germany.

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