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Does the seller of a house facing a large number of buyers always decrease its price when its first offer is rejected?

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  • GABSZEWICZ, Jean J.

    ()
    (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)

  • VAN YPERSELE, Tanguy

    ()
    (GREQAM, Université de la Méditerrannée)

  • ZANAJ, Skerdilajda

    ()
    (CREA, University of Luxembourg)

Abstract

This paper identifies the optimal two-period price sequence in the attempt for selling a good, with take-it-or-leave-it offers, when the seller faces ambiguity about the buyers' willingness to pay. If the first round fails, the seller updates its beliefs on the state of the market in accordance with Bayes rule and quotes a second and final price. We show that the optimal sequence of prices can be increasing. Furthermore, we describe the optimal sequence of prices with a myopic seller who does not update his beliefs in the second period. In this case, the optimal price sequence is always decreasing.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2011049.

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Date of creation: 28 Oct 2011
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Handle: RePEc:cor:louvco:2011049

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Keywords: ambiguity; sequential bilateral trade; bayesian vs myopic behaviour;

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  1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
  2. Ken Binmore, 1980. "Nash Bargaining Theory II (Now published in The Economics of Bargaining, edited by K. Binmore and P. Dasgupta, Basil Blackwell, Oxford, 1987.)," STICERD - Theoretical Economics Paper Series /1980/14, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  3. Ken Binmore, 1980. "Nash Bargaining Theory III (Now published in The Economics of Bargaining, edited by K. Binmore and P. Dasgupta, (Basil Blackwell, Oxford, 1987).)," STICERD - Theoretical Economics Paper Series /1980/15, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  4. Fleurbaey,Marc & Maniquet,François, 2011. "A Theory of Fairness and Social Welfare," Cambridge Books, Cambridge University Press, number 9780521715348.
  5. Belleflamme,Paul & Peitz,Martin, 2010. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9780521681599.
  6. Fudenberg, Drew & Tirole, Jean, 1983. "Sequential Bargaining with Incomplete Information," Review of Economic Studies, Wiley Blackwell, vol. 50(2), pages 221-47, April.
  7. Duranton, Gilles & Martin, Philippe & Mayer, Thierry & Mayneris, Florian, 2010. "The Economics of Clusters: Lessons from the French Experience," OUP Catalogue, Oxford University Press, number 9780199592203, October.
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