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Equilibrium Selling Mechanisms

  • Yongmin Chen

    (Economics Department, University of Colorado at Boulder)

  • Ruqu Wang

    ()

    (Economics Department, Queen's University and University of Colorado at Boulder)

We consider the equilibrium choice of selling mechanisms by competing firms. For a model where a number of sellers choose sequentially between any two selling mechanisms, there is a unique (subgame perfect) equilibrium under fairly natural assumptions about the monotonicity and differences of the two mechanisms. All sellers choose the mechanism that has the higher per-seller surplus at a critical mass number of sellers. If a mechanism is efficient or is favored by the buyer in some "strong" sense, it will be selected as the equilibrium mechanism. Otherwise, the less efficient mechanism can emerge in equilibrium, even when the number of sellers is arbitrarily large. An increase in the number of sellers need not increase the buyer's surplus, and can sometimes lead to a less e¡Àcient equilibrium mechanism. When more than two selling mechanisms are available, however, the equilibrium may no long be unique; and there are usually multiple equilibria when sellers choose selling mechanisms simultaneously.

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Article provided by Society for AEF in its journal Annals of Economics and Finance.

Volume (Year): 5 (2004)
Issue (Month): 2 (November)
Pages: 335-355

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Handle: RePEc:cuf:journl:y:2004:v:5:i:2:p:335-355
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  1. Miller, Nolan & Piankov, Nikita & Zeckhauser, Richard, 2001. "When to Haggle," Working Paper Series rwp01-025, Harvard University, John F. Kennedy School of Government.
  2. Peters Michael, 1994. "Equilibrium Mechanisms in a Decentralized Market," Journal of Economic Theory, Elsevier, vol. 64(2), pages 390-423, December.
  3. Riley, John & Zeckhauser, Richard, 1983. "Optimal Selling Strategies: When to Haggle, When to Hold Firm," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 267-89, May.
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  7. Chen, Yongmin & Wang, Ruqu, 2004. "A model of competing selling mechanisms," Economics Letters, Elsevier, vol. 85(2), pages 151-155, November.
  8. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-79, September.
  9. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-94, March.
  10. Burguet, Roberto & Sakovics, Jozsef, 1999. "Imperfect Competition in Auction Designs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(1), pages 231-47, February.
  11. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
  12. J. Riley & E. Maskin, 1981. "Optimal Auctions with Risk Averse Buyers," Working papers 311, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. Birger Wernerfelt, 1994. "Selling Formats for Search Goods," Marketing Science, INFORMS, vol. 13(3), pages 298-309.
  14. Lu, Xiaohua & McAfee, R. Preston, 1996. "The Evolutionary Stability of Auctions over Bargaining," Games and Economic Behavior, Elsevier, vol. 15(2), pages 228-254, August.
  15. Wang, Ruqu, 1995. "Bargaining versus posted-price selling," European Economic Review, Elsevier, vol. 39(9), pages 1747-1764, December.
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