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Prices as Optimal Competitive Sales Mechanisms


  • Philipp Kircher

    (University of Pennsylvania)

  • Jan Eeckhout

    (University of Pennsylvania)


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.

Suggested Citation

  • Philipp Kircher & Jan Eeckhout, 2008. "Prices as Optimal Competitive Sales Mechanisms," 2008 Meeting Papers 504, Society for Economic Dynamics.
  • Handle: RePEc:red:sed008:504

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    References listed on IDEAS

    1. 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, January.
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    5. Wang, Ruqu, 1993. "Auctions versus Posted-Price Selling," American Economic Review, American Economic Association, vol. 83(4), pages 838-851, September.
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    7. 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.
    8. 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.
    9. Kultti, Klaus, 1999. "Equivalence of Auctions and Posted Prices," Games and Economic Behavior, Elsevier, vol. 27(1), pages 106-113, April.
    10. Berentsen, Aleksander & Menzio, Guido & Wright, Randall D., 2007. "Inflation and Unemployment: Lagos-Wright meets Mortensen-Pissarides," Kiel Working Papers 1334, Kiel Institute for the World Economy (IfW).
    11. 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, May.
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    13. Epstein, Larry G. & Peters, Michael, 1999. "A Revelation Principle for Competing Mechanisms," Journal of Economic Theory, Elsevier, vol. 88(1), pages 119-160, September.
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    Cited by:

    1. Jan Eeckhout & Philipp Kircher, 2010. "Sorting and Decentralized Price Competition," Econometrica, Econometric Society, vol. 78(2), pages 539-574, March.

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