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Asking Prices as Commitment Devices

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  • Chen, Yongmin
  • Rosenthal, Robert W

Abstract

This paper explores the implications of the hypothesis that an asking price is a ceiling to which a seller commits in order to provide incentives for potential buyers to incur search costs. Having attracted such a potential buyer, the seller must also determine how low to set the floor price, below which it is preferable to wait for another customer. This decision is affected by expectations about the characteristics of future buyers, which are, in turn, affected by the asking price. All of this is embedded in models of monopoly and of duopolistic competition. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Chen, Yongmin & Rosenthal, Robert W, 1996. "Asking Prices as Commitment Devices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 129-155, February.
  • Handle: RePEc:ier:iecrev:v:37:y:1996:i:1:p:129-55
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