Prices as Optimal Competitive Sales Mechanisms
We analyze the efficiency properties of price posting in a market where sellers compete for the buyers' business. They key feature of the approach is to investigate price posting as an equilibrium outcome even if sellers can compete with other mechanisms. When buyers are homogeneous, we show equivalence between price posting and a large class of competing mechanisms, including second price auctions. When buyers are heterogeneous, posted prices are able to perfectly screen ex-ante because different buyers endogenously choose to trade at different prices. As a result, search is non-random and buyers sort themselves by choosing different prices. Whether price posting is efficient depends on the matching technology. Prices are efficient and arise in equilibrium when meetings are bilateral, which is the case in competitive search models. When meetings are multilateral, as in directed search models, price posting is not an equilibrium. In that case, the efficient mechanism screens ex post amongst multiple buyers and necessarily involves random search. The conclusion for market design is that the prevalence of price posting over auctions depends crucially on the properties of the meeting technology.
|Date of creation:||2008|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/society.htm
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.:
- Randall Wright & Guillame Rocheteau, 2003.
"Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium,"
666156000000000302, UCLA Department of Economics.
- Guillaume Rocheteau & Randall Wright, 2005. "Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium," Econometrica, Econometric Society, vol. 73(1), pages 175-202, 01.
- Guillaume Rocheteau & Randall Wright, 2003. "Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium," PIER Working Paper Archive 03-031, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Guillaume Rocheteau & Randall Wright, 2004. "Money in search equilibrium, in competitive equilibrium, and in competitive search equilibrium," Working Paper 0405, Federal Reserve Bank of Cleveland.
- Shouyong Shi, 2006.
"Wage Differentials, Discrimination and Efficiency,"
tecipa-189, University of Toronto, Department of Economics.
- 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.
- Shouyong Shi, 1998.
Cahiers de recherche CREFE / CREFE Working Papers
74, CREFE, Université du Québec à Montréal.
- Espen R. Moen & Asa Rosen, 2007.
"Incentives in competitive search equilibrium,"
LSE Research Online Documents on Economics
19663, London School of Economics and Political Science, LSE Library.
- Shouyong Shi, 2002. "A Directed Search Model of Inequality with Heterogeneous Skills and Skill-Biased Technology," Review of Economic Studies, Oxford University Press, vol. 69(2), pages 467-491.
- Peters, Michael & Severinov, Sergei, 1997.
"Competition among Sellers Who Offer Auctions Instead of Prices,"
Journal of Economic Theory,
Elsevier, vol. 75(1), pages 141-179, July.
- Michael Peters & Sergei Severinov, 1995. "Competition Among Sellers who offer Auctions Instead of Prices," Working Papers peters-95-02, University of Toronto, Department of Economics.
- Alain Delacroix & Shouyong Shi, 2006.
"Directed Search On The Job And The Wage Ladder,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(2), pages 651-699, 05.
- Robert Shimer, 2001.
"The Assignment of Workers to Jobs In an Economy with Coordination Frictions,"
NBER Working Papers
8501, National Bureau of Economic Research, Inc.
- Robert Shimer, 2005. "The Assignment of Workers to Jobs in an Economy with Coordination Frictions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 996-1025, October.
- Epstein, Larry G. & Peters, Michael, 1999.
"A Revelation Principle for Competing Mechanisms,"
Journal of Economic Theory,
Elsevier, vol. 88(1), pages 119-160, September.
When requesting a correction, please mention this item's handle: RePEc:red:sed008:504. 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: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.