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Competing with Asking Prices

Listed author(s):
  • Lester, Benjamin R.

    ()

    (Federal Reserve Bank of Philadelphia)

  • Visschers, Ludo

    ()

    (University of Edinburgh)

  • Wolthoff, Ronald P.

    ()

    (University of Toronto)

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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7163.

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Length: 45 pages
Date of creation: Jan 2013
Publication status: forthcoming in: Theoretical Economics, 2016
Handle: RePEc:iza:izadps:dp7163
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