Competing with Asking Prices
AbstractIn many markets, sellers advertise their good with an asking price. This is a price at which the seller is willing to take his good off the market and trade immediately, though it is understood that a buyer can submit an offer below the asking price and that this offer may be accepted if the seller receives no better offers. Despite their prevalence in a variety of real world markets, asking prices have received little attention in the academic literature. We construct an environment with a few simple, realistic ingredients and demonstrate that using an asking price is optimal: it is the pricing mechanism that maximizes sellers' revenues and it implements the efficient outcome in equilibrium. We provide a complete characterization of this equilibrium and use it to explore the positive implications of this pricing mechanism for transaction prices and allocations.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7163.
Length: 45 pages
Date of creation: Jan 2013
Date of revision:
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Other versions of this item:
- Benjamin Lester & Ludo Visschers & Ronald Wolthoff, 2013. "Competing with Asking Prices," Working Papers tecipa-471, University of Toronto, Department of Economics.
- Benjamin Lester & Ludo Visschers & Ronald Wolthoff, 2013. "Competing with asking prices," Working Papers 13-07, Federal Reserve Bank of Philadelphia.
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Production Analysis, and Firm Location - - - Housing Supply and Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-16 (All new papers)
- NEP-COM-2013-02-16 (Industrial Competition)
- NEP-MIC-2013-02-16 (Microeconomics)
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