Outside Options and the Failure of the Coase Conjecture
A buyer wishes to purchase a good from a seller who chooses a sequence of prices over time. Each period the buyer can also exercise an outside option, abandoning their search or moving on to another seller. We show there is a unique equilibrium in which the seller charges a constant price in every period equal to the monopoly price, contravening the Coase conjecture. We then embed the singleseller model into a search framework and show the result provides a foundation for the usual "no haggling" assumption.
Volume (Year): 104 (2014)
Issue (Month): 2 (February)
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