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Asking Price and Price Discounts: The Strategy of Selling an Asset Under Price Uncertainty

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  • Tapan Biswas

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  • Jolian Mchardy

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Abstract

We consider fixed and asking price strategies in the context of selling an asset with Bernoullian updating of the seller’s subjective probability of sale at a given price. The determination of optimal fixed, asking and endogenous reservation prices is discussed under risk-neutrality and expected utility maximisation. With risk-neutrality, the optimal asking price exceeds the optimal fixed price when the expected gain is a strictly concave function. The seller’s choice between the fixed and the asking price strategies depends on several factors: the expected cost of haggling, price competition and the seller’s attitude towards risk. Copyright Springer Science+Business Media, LLC 2007

Suggested Citation

  • Tapan Biswas & Jolian Mchardy, 2007. "Asking Price and Price Discounts: The Strategy of Selling an Asset Under Price Uncertainty," Theory and Decision, Springer, vol. 62(3), pages 281-301, May.
  • Handle: RePEc:kap:theord:v:62:y:2007:i:3:p:281-301 DOI: 10.1007/s11238-007-9031-9
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    References listed on IDEAS

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    1. Rothschild, Michael, 1974. "Searching for the Lowest Price When the Distribution of Prices Is Unknown," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 689-711, July/Aug..
    2. John G. Riley & Richard Zeckhauser, 1980. "Optimal Selling Strategies:," UCLA Economics Working Papers 180, UCLA Department of Economics.
    3. Horowitz, Joel L, 1992. "The Role of the List Price in Housing Markets: Theory and an Econometric Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(2), pages 115-129, April-Jun.
    4. Thanassoulis, John, 2004. "Haggling over substitutes," Journal of Economic Theory, Elsevier, vol. 117(2), pages 217-245, August.
    5. Tapan Biswas, 2012. "A Note on the Generalised Measures of Risk Aversion," Review of Economic Analysis, Rimini Centre for Economic Analysis, vol. 4(1), pages 151-156, June.
    6. Telser, L G, 1973. "Searching for the Lowest Price," American Economic Review, American Economic Association, vol. 63(2), pages 40-49, May.
    7. S. Christian Albright, 1977. "A Bayesian Approach to a Generalized House Selling Problem," Management Science, INFORMS, vol. 24(4), pages 432-440, December.
    8. Zuehlke, Thomas W, 1987. "Duration Dependence in the Housing Market," The Review of Economics and Statistics, MIT Press, vol. 69(4), pages 701-704, November.
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    Cited by:

    1. repec:spr:jstada:v:4:y:2017:i:1:d:10.1186_s40488-017-0067-2 is not listed on IDEAS
    2. Egozcue, Martin & Fuentes García, Luis & Zitikis, Ricardas, 2012. "An optimal strategy for maximizing the expected real-estate selling price: accept or reject an offer?," MPRA Paper 40694, University Library of Munich, Germany.
    3. Keshab BHATTARAI, "undated". "Bargaining, Coalitions, Signalling and Repeated Games for Economic Development and Poverty Alleviation," EcoMod2008 23800012, EcoMod.

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