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On the Robustness of Pricing Mechanisms

Author

Listed:
  • Han Han Peking

    (University School of Economics)

  • Benoit Julien

    (UNSW Sydney)

  • Liang Wang

    (University of Hawaii Manoa)

Abstract

We study the robustness of two well-known and frequently observed multilateral trading protocols, price posting and auction, in small markets. In the context of directed search, sellers choose and commit to an ex-ante trading protocol to attract buyers. When constructing equilibrium, the deviating seller usually chooses the same mechanism as non-deviating sellers. In this paper, however, we allow the deviating seller to bargain with a buyer. In this setup, we find that price posting and auction are not robust mechanisms, because there is always a profitable deviation of bargaining. Then, we introduce a new hybrid multilateral trading protocol, which combines auction and bargaining. We show that when sellers commit to such a mechanism, the equilibrium is robust to deviations of bargaining.

Suggested Citation

  • Han Han Peking & Benoit Julien & Liang Wang, 2021. "On the Robustness of Pricing Mechanisms," Working Papers 202105, University of Hawaii at Manoa, Department of Economics.
    • Handle: RePEc:hai:wpaper:202106
    as

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    File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_21-06.pdf
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    References listed on IDEAS

    as
    1. Kultti, Klaus, 1999. "Equivalence of Auctions and Posted Prices," Games and Economic Behavior, Elsevier, vol. 27(1), pages 106-113, April.
    2. Benoît Julien & John Kennes & Ian King, 2002. "Auctions Beat Posted Prices in a Small Market," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 158(4), pages 548-562, December.
    3. Pedro Gomis‐Porqueras & Benoit Julien & Chengsi Wang, 2017. "Strategic Advertising And Directed Search," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58(3), pages 783-806, August.
    4. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
    5. Mortensen, Dale T., 1987. "Job search and labor market analysis," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 2, chapter 15, pages 849-919, Elsevier.
    6. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
    7. Benoit Julien & John Kennes & Ian King, 2000. "Bidding for Labor," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 619-649, October.
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    More about this item

    Keywords

    Housing market; Auction; Bargaining; Directed Search; Price Posting;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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