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On the Use of Ceiling-Price Commitments by Monopolists

  • Yongmin Chen
  • Robert W. Rosenthal

The establishment of an asking, or ceiling, price from which reductions can be bargained is a common selling practice. For a monopolist seller of a single object, this article characterizes the best such ceiling price and shows that its use is optimal among all incentive-compatible mechanisms in a class of situations characterized by customers (1) who arrive one at a time and so do not compete with other directly and (2) who learn their idiosyncratic willingnesses to pay only by incurring idiosyncratic inspection costs.

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Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 27 (1996)
Issue (Month): 2 (Summer)
Pages: 207-220

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Handle: RePEc:rje:randje:v:27:y:1996:i:summer:p:207-220
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