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Asking Price And Price Discounts: The Strategy Of Selling An Asset Under Price Uncertainty

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  • TAPAN BISWAS
  • JOLIAN MCHARDY

Abstract

(Originally published in Theory and Decision (2007) 62:281-301 (c) Springer) - We consider fixed and asking price strategies in the con- text 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-neutral- ity 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.

Suggested Citation

  • Tapan Biswas & Jolian Mchardy, 2012. "Asking Price And Price Discounts: The Strategy Of Selling An Asset Under Price Uncertainty," Review of Economic Analysis, Digital Initiatives at the University of Waterloo Library, vol. 4(1), pages 17-37, June.
    • Handle: RePEc:ren:journl:v:4:y:2012:i:1:p:17-37
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    References listed on IDEAS

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    1. 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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    8. Telser, L G, 1973. "Searching for the Lowest Price," American Economic Review, American Economic Association, vol. 63(2), pages 40-49, May.
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    Cited by:

    1. Martín Egozcue & Jiang Wu & Ričardas Zitikis, 2017. "Optimal two-stage pricing strategies from the seller’s perspective under the uncertainty of buyer’s decisions," Journal of Statistical Distributions and Applications, Springer, vol. 4(1), pages 1-25, December.
    2. Kazi Wahadul Hasan & Maliha Binte Hanif, 2022. "A pricing model for real-estate business in Bangladesh incorporating the uncertainty in buyer’s readiness: considerations during COVID-19 pandemic," SN Business & Economics, Springer, vol. 2(10), pages 1-16, October.
    3. 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.
    4. Keshab BHATTARAI, 2008. "Bargaining, Coalitions, Signalling and Repeated Games for Economic Development and Poverty Alleviation," EcoMod2008 23800012, EcoMod.

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