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Posted Prices, Search and Bargaining

Author

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  • Derek G. Stacey

    () (Department of Economics, Ryerson University, Toronto, Canada)

Abstract

A model of a decentralized market is developed that features search frictions, advertised prices and bargaining. Sellers can post ask prices to attract buyers through a process of directed search, but ex post there is the possibility of negotiation. Similarly, buyers can advertise negotiable bid prices to attract sellers. Even when transaction prices often differ from quoted prices, bid and ask prices play a crucial role in directing search and reducing trading frictions. The theory endogenizes the direction of search and provides insight about the prevalence of posted prices in the absence of full commitment by market participants to transact at the advertised price.

Suggested Citation

  • Derek G. Stacey, 2015. "Posted Prices, Search and Bargaining," Working Papers 059, Ryerson University, Department of Economics, revised Dec 2017.
  • Handle: RePEc:rye:wpaper:wp059
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    File URL: http://economics.ryerson.ca/workingpapers/wp059.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Bid and Ask Prices; Search Frictions; Price Commitment;

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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