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Competing with Asking Prices

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Author Info

  • Benjamin Lester
  • Ludo Visschers
  • Ronald Wolthoff

Abstract

In 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 Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-471.

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Length: Unknown pages
Date of creation: 16 Jan 2013
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-471

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Related research

Keywords: Asking Prices; Competing Mechanism Design; Auctions with Entry; Competitive Search;

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References

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  1. Michael A. Arnold, 1999. "Search, Bargaining and Optimal Asking Prices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(3), pages 453-481.
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  10. Crémer, Jacques & Spiegel, Yossi & Zheng, Charles Zhoucheng, 2007. "Auctions with Costly Information Acquisition," Staff General Research Papers 12709, Iowa State University, Department of Economics.
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  18. 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.
  19. Derek G. Stacey, 2012. "Information, Commitment, and Separation in Illiquid Housing Markets," Working Papers 1289, Queen's University, Department of Economics.
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  24. Albrecht, James & Gautier, Pieter & Vroman, Susan, 2012. "A note on Peters and Severinov, “Competition among sellers who offer auctions instead of prices”," Journal of Economic Theory, Elsevier, vol. 147(1), pages 389-392.
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Cited by:
  1. James Albrecht, Pieter Gautier, Susan Vroman, 2013. "Efficient Entry in Competing Auctions," Working Papers gueconwpa~13-13-05, Georgetown University, Department of Economics.

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