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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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Author Info

  • Jean J. Gabszewicz

    (CORE Université catholique de Louvain)

  • Tanguy van Ypersele

    ()
    (GREQAM, Marseille)

  • Skerdilajda Zanaj

    ()
    (CREA, University of Luxembourg)

Abstract

This paper investigates the optimal price sequence of a two period tentative to sell an indivisible good, with take-it-or-leave-it offers, in which 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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File URL: http://wwwen.uni.lu/content/download/44002/508033/file/2011-15%20-%20Does%20the%20seller%20of%20a%20house%20facing%20a%20large%20number%20of%20buyers%20always%20decrease%20its%20price%20when%20its%20first%20offer%20is%20rejected.pdf
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Bibliographic Info

Paper provided by Center for Research in Economic Analysis, University of Luxembourg in its series CREA Discussion Paper Series with number 11-15.

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Date of creation: 2011
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Handle: RePEc:luc:wpaper:11-15

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Related research

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

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  1. Fleurbaey,Marc & Maniquet,François, 2011. "A Theory of Fairness and Social Welfare," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521887427.
  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, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE /1980/14, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  3. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  4. Duranton, Gilles & Martin, Philippe & Mayer, Thierry & Mayneris, Florian, 2010. "The Economics of Clusters: Lessons from the French Experience," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199592203, October.
  5. Belleflamme,Paul & Peitz,Martin, 2010. "Industrial Organization," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521681599.
  6. 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, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE /1980/15, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  7. Fudenberg, Drew & Tirole, Jean, 1983. "Sequential Bargaining with Incomplete Information," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 50(2), pages 221-47, April.
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