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Exploding Offers

Author

Listed:
  • Steven A. Lippman

    (Anderson School of Management, University of California, Los Angeles, Los Angeles, California 90095)

  • John W. Mamer

    (Anderson School of Management, University of California, Los Angeles, Los Angeles, California 90095)

Abstract

A buyer seeks to purchase an asset from a seller who has a finite time T in which to sell his asset. Either the buyer's offer is permanent and remains available until time T , or it is an exploding offer and remains in effect only at the instant it is made. Our goal is to determine when an exploding offer maximizes the buyer's probability of purchasing the asset (at the given offer price). We embed our analysis in a standard continuous time finite horizon search model with recall in which only one buyer is strategic and considers making an exploding offer. Our analysis and examples reveal that the strategic buyer's choice of offer duration is complex: almost anything can occur. We obtain an explicit characterization of the optimal choice when the offer distribution is uniform.

Suggested Citation

  • Steven A. Lippman & John W. Mamer, 2012. "Exploding Offers," Decision Analysis, INFORMS, vol. 9(1), pages 6-21, March.
    • Handle: RePEc:inm:ordeca:v:9:y:2012:i:1:p:6-21
    DOI: 10.1287/deca.1110.0228
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    References listed on IDEAS

    as
    1. Lippman, Steven A & McCall, John J, 1976. "The Economics of Job Search: A Survey: Part I," Economic Inquiry, Western Economic Association International, vol. 14(2), pages 155-189, June.
    2. Muriel Niederle & Alvin E. Roth, 2009. "Market Culture: How Rules Governing Exploding Offers Affect Market Performance," American Economic Journal: Microeconomics, American Economic Association, vol. 1(2), pages 199-219, August.
    3. Das, Sanmay & Tsitsiklis, John N., 2010. "When is it important to know you've been rejected? A search problem with probabilistic appearance of offers," Journal of Economic Behavior & Organization, Elsevier, vol. 74(1-2), pages 104-122, May.
    4. Roth, Alvin E & Xing, Xiaolin, 1994. "Jumping the Gun: Imperfections and Institutions Related to the Timing of Market Transactions," American Economic Review, American Economic Association, vol. 84(4), pages 992-1044, September.
    5. Lippman, Steven A & McCall, John J, 1976. "The Economics of Job Search: A Survey," Economic Inquiry, Western Economic Association International, vol. 14(3), pages 347-368, September.
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    Cited by:

    1. Alexander L. Brown & Ajalavat Viriyavipart & Xiaoyuan Wang, 2014. "Exploding Offers with Experimental Consumer Goods," Working Papers 20141006-001, Texas A&M University, Department of Economics.
    2. Alexander L. Brown & Rodrigo A. Velez, 2014. "The costs and benefits of symmetry in common-ownership allocation problems," Working Papers 20141106-10001, Texas A&M University, Department of Economics.

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