Intertemporal Pricing in Markets with Differential Information
AbstractThis paper provides a theory of intertemporal pricing in a small market with differential information about the realizations of a stochastic process which determines demand. We study the sequential equilibria in stationary strategies of the stochastic game between a seller and buyer. The seller has zero cost of producing one unit of a non-durable good in all market periods. The buyer's value for the good is a random variable governed by a simple Markov process. At the beginning of each period the unit's value is determined by nature and is privately revealed to the buyer. The seller posts a single price offer each period, which the buyer either accepts or rejects. Only two types of price paths emerge in equilibrium: either prices are constant, or they have persistent cycles between a low and a high value. In both cases, however, prices are sticky in the sense that changes in price are less frequent than changes in the economy's fundamentals.
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 8 (1996)
Issue (Month): 2 (August)
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Web page: http://link.springer.de/link/service/journals/00199/index.htm
Other versions of this item:
- Aldo Rustichini & Anne P. Villamil, 1996. "Intertemporal pricing in markets with differential information," Economic Theory, Springer, vol. 8(2), pages 211-227.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
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