Trading Mechanism Selection with Directed Search when Buyers are Risk Averse
We endogenize the trading mechanism selection in a model of directed search with risk averse buyers and show that the unique symmetric equilibrium entails all sellers using fixed price trading. Mechanisms that prescribe the sale price as a function of the realized demand (auctions, bargaining, discount pricing, etc.) expose buyers to the "price risk", the uncertainty of not knowing how much to pay in advance. Fixed price trading eliminates the price risk, which is why risk averse customers accept paying more to shop at such stores.
|Date of creation:||2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, June.
- Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
- repec:oup:restud:v:64:y:1997:i:1:p:97-123 is not listed on IDEAS
- Kultti, K.K., 1997.
"Equivalence of Auctions and Posted Prices,"
1997-57, Tilburg University, Center for Economic Research.
- Wang, Ruqu, 1995. "Bargaining versus posted-price selling," European Economic Review, Elsevier, vol. 39(9), pages 1747-1764, December.
- Rubinstein, Ariel, 1982.
"Perfect Equilibrium in a Bargaining Model,"
Econometric Society, vol. 50(1), pages 97-109, January.
- Benoit Julien & John Kennes & Ian King, 2000.
"Bidding for Labor,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 619-649, October.
- Peters, Michael, 2000.
"Limits of Exact Equilibria for Capacity Constrained Sellers with Costly Search,"
Journal of Economic Theory,
Elsevier, vol. 95(2), pages 139-168, December.
- Michael Peters, 1998. "Limits of Exact Equilibria for Capacity Constrained Sellers with costlySearch," Working Papers peters-98-01, University of Toronto, Department of Economics.
- Wang, Ruqu, 1993.
"Auctions versus Posted-Price Selling,"
American Economic Review,
American Economic Association, vol. 83(4), pages 838-51, September.
- Jan Eeckhout & Philipp Kircher, 2010.
"Sorting versus screening: search frictions and competing mechanisms,"
LSE Research Online Documents on Economics
29704, London School of Economics and Political Science, LSE Library.
- Eeckhout, Jan & Kircher, Philipp, 2010. "Sorting versus screening: Search frictions and competing mechanisms," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1354-1385, July.
- McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
- Gabriele Camera & Cemil Selcuk, 2010. "Multi-player Bargaining with Endogenous Capacity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 637-653, July.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:36224. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.