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Competing with asking prices

  • Benjamin Lester
  • Ludo Visschers
  • Ronald Wolthoff

In many markets, sellers advertise their good with an asking price. This is a price at which the seller is willing to take his good off the market and trade immediately, though it is understood that a buyer can submit an offer below the asking price and that this offer may be accepted if the seller receives no better offers. Despite their prevalence in a variety of real world markets, asking prices have received little attention in the academic literature. We construct an environment with a few simple, realistic ingredients and demonstrate that using an asking price is optimal: it is the pricing mechanism that maximizes sellers’ revenues and it implements the efficient outcome in equilibrium. We provide a complete characterization of this equilibrium and use it to explore the positive implications of this pricing mechanism for transaction prices and allocations.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 13-07.

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Date of creation: 2013
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Handle: RePEc:fip:fedpwp:13-07
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