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Can forgetful sellers be better off? Impact of information in an ultimatum price-setting game with learning

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  • Christopher Cotton

    (Cornell University)

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    Abstract

    This paper introduces learning dynamics into a posted-offer pricing game, in which sellers observe past-period transactions before announcing a take-it or leave-it price, and buyers either accept or reject the announced price. We consider the impact that seller access to information regarding past transaction has on the long-term prices, and show that when sellers have imperfect information about the past, the long-term average sale price may be higher than when sellers perfectly observe the entire history of the game. It follows that limiting seller information can improve their long-term average welfare, and total long- term average sales revenue. This has interesting implications regarding firm incentives to provide information to their managers and sales agents.

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    File URL: http://128.118.178.162/eps/game/papers/0510/0510007.pdf
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    Bibliographic Info

    Paper provided by EconWPA in its series Game Theory and Information with number 0510007.

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    Length: 41 pages
    Date of creation: 18 Oct 2005
    Date of revision:
    Handle: RePEc:wpa:wuwpga:0510007

    Note: Type of Document - pdf; pages: 41
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    Web page: http://128.118.178.162

    Related research

    Keywords: learning; posted price games; limited memory; management incentives;

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    1. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
    2. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
    3. Anil Gaba & Ajay Kalra, 1999. "Risk Behavior in Response to Quotas and Contests," Marketing Science, INFORMS, vol. 18(3), pages 417-434.
    4. Ross, Stephen A, 1973. "The Economic Theory of Agency: The Principal's Problem," American Economic Review, American Economic Association, vol. 63(2), pages 134-39, May.
    5. Amiya K. Basu & Rajiv Lal & V. Srinivasan & Richard Staelin, 1985. "Salesforce Compensation Plans: An Agency Theoretic Perspective," Marketing Science, INFORMS, vol. 4(4), pages 267-291.
    6. Holmstrom, Bengt, 1999. "Managerial Incentive Problems: A Dynamic Perspective," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 169-82, January.
    7. Hurkens Sjaak, 1995. "Learning by Forgetful Players," Games and Economic Behavior, Elsevier, vol. 11(2), pages 304-329, November.
    8. Jorgen W. Weibull, 1997. "Evolutionary Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262731215, December.
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