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Posted Offer versus Bargaining: An Example of how Institutions can Facilitate Learning

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  • Koye Somefun
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    Abstract

    This paper introduces a notion of learning as found in formal learning theory. This concept of learning enables us to investigate the idea that certain market institutions have the desirable property that they reduce the difficulty of adaptive learning, hence facilitating inductive reasoning. To exemplify this idea, we compare the popular market institutions of the posted offer selling mechanism and price bargaining. A seller of a durable consumer good who enjoys relative monopoly power characterizes both market institutions. The seller offers the good for sale for an infinite number of consecutive trading periods. At the beginning of every trading period she has to determine the price and the quality for the good offered where the profits realized in the past guide her choice, i.e., profit serves as the measure of success. Loosely put, the question then is which market institution better facilitates inductive reasoning.

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    Bibliographic Info

    Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2001 with number 79.

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    Date of creation: 01 Apr 2001
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    Handle: RePEc:sce:scecf1:79

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    Web page: http://www.econometricsociety.org/conference/SCE2001/SCE2001.html
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    Keywords: adaptive learning; formal learning theory; computability theory; market structure;

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    1. Bester, H., 1993. "Price Commitment in Search Markets," Papers, Tilburg - Center for Economic Research 9309, Tilburg - Center for Economic Research.
    2. Bester, Helmut, 1993. "Bargaining versus Price Competition in Markets with Quality Uncertainty," American Economic Review, American Economic Association, vol. 83(1), pages 278-88, March.
    3. John G. Riley & Richard Zeckhauser, 1980. "Optimal Selling Strategies:," UCLA Economics Working Papers 180, UCLA Department of Economics.
    4. Jean-Michel Grandmont, 1997. "Expectations Formation and Stability of Large Socioeconomic Systems," Working Papers, Centre de Recherche en Economie et Statistique 97-27, Centre de Recherche en Economie et Statistique.
    5. Wang, Ruqu, 1995. "Bargaining versus posted-price selling," European Economic Review, Elsevier, vol. 39(9), pages 1747-1764, December.
    6. Arnold, Michael A & Lippman, Steven A, 1998. "Posted Prices versus Bargaining in Markets with Asymmetric Information," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 36(3), pages 450-57, July.
    7. Brock, W.A. & Hommes, C.H., 1996. "A Rational Route to Randomness," Working papers, Wisconsin Madison - Social Systems 9530r, Wisconsin Madison - Social Systems.
    8. F J Anscombe & R J Aumann, 2000. "A Definition of Subjective Probability," Levine's Working Paper Archive 7591, David K. Levine.
    9. Brock, William A. & Hommes, Cars H., 1998. "Heterogeneous beliefs and routes to chaos in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 22(8-9), pages 1235-1274, August.
    10. Tesfatsion, Leigh, 2001. "Introduction to the special issue on agent-based computational economics," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 25(3-4), pages 281-293, March.
    11. Stiglitz, Joseph E, 1987. "The Causes and Consequences of the Dependence of Quality on Price," Journal of Economic Literature, American Economic Association, vol. 25(1), pages 1-48, March.
    12. Drew Fudenberg & David K. Levine, 1998. "Learning in Games," Levine's Working Paper Archive 2222, David K. Levine.
    13. Spear, Stephen E, 1989. "Learning Rational Expectations under Computability Constraints," Econometrica, Econometric Society, Econometric Society, vol. 57(4), pages 889-910, July.
    14. Peter Diamond, 1985. "Search Theory," Working papers 389, Massachusetts Institute of Technology (MIT), Department of Economics.
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