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Posted Offer versus Bargaining: An Example of how Institutions can Facilitate Learning


  • Koye Somefun


This paper introduces a notion of learning as found in formal learning theory. This concept of learning enables us to investigate the idea that certain market institutions have the desirable property that they reduce the difficulty of adaptive learning, hence facilitating inductive reasoning. To exemplify this idea, we compare the popular market institutions of the posted offer selling mechanism and price bargaining. A seller of a durable consumer good who enjoys relative monopoly power characterizes both market institutions. The seller offers the good for sale for an infinite number of consecutive trading periods. At the beginning of every trading period she has to determine the price and the quality for the good offered where the profits realized in the past guide her choice, i.e., profit serves as the measure of success. Loosely put, the question then is which market institution better facilitates inductive reasoning.

Suggested Citation

  • Koye Somefun, 2001. "Posted Offer versus Bargaining: An Example of how Institutions can Facilitate Learning," Computing in Economics and Finance 2001 79, Society for Computational Economics.
  • Handle: RePEc:sce:scecf1:79

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    References listed on IDEAS

    1. Fudenberg, Drew & Levine, David, 1998. "Learning in games," European Economic Review, Elsevier, vol. 42(3-5), pages 631-639, May.
    2. John G. Riley & Richard Zeckhauser, 1980. "Optimal Selling Strategies:," UCLA Economics Working Papers 180, UCLA Department of Economics.
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    4. Arnold, Michael A & Lippman, Steven A, 1998. "Posted Prices versus Bargaining in Markets with Asymmetric Information," Economic Inquiry, Western Economic Association International, vol. 36(3), pages 450-457, July.
    5. Peter Diamond, 1985. "Search Theory," Working papers 389, Massachusetts Institute of Technology (MIT), Department of Economics.
    6. William A. Brock & Cars H. Hommes, 1997. "A Rational Route to Randomness," Econometrica, Econometric Society, vol. 65(5), pages 1059-1096, September.
    7. Tesfatsion, Leigh, 2001. "Introduction to the special issue on agent-based computational economics," Journal of Economic Dynamics and Control, Elsevier, vol. 25(3-4), pages 281-293, March.
    8. Jean-Michel Grandmont, 1998. "Expectations Formation and Stability of Large Socioeconomic Systems," Econometrica, Econometric Society, vol. 66(4), pages 741-782, July.
    9. Bester, Helmut, 1994. "Price commitment in search markets," Journal of Economic Behavior & Organization, Elsevier, vol. 25(1), pages 109-120, September.
    10. Brock, William A. & Hommes, Cars H., 1998. "Heterogeneous beliefs and routes to chaos in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1235-1274, August.
    11. Wang, Ruqu, 1995. "Bargaining versus posted-price selling," European Economic Review, Elsevier, vol. 39(9), pages 1747-1764, December.
    12. Spear, Stephen E, 1989. "Learning Rational Expectations under Computability Constraints," Econometrica, Econometric Society, vol. 57(4), pages 889-910, July.
    13. F J Anscombe & R J Aumann, 2000. "A Definition of Subjective Probability," Levine's Working Paper Archive 7591, David K. Levine.
    14. Bester, Helmut, 1993. "Bargaining versus Price Competition in Markets with Quality Uncertainty," American Economic Review, American Economic Association, vol. 83(1), pages 278-288, March.
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    More about this item


    adaptive learning; formal learning theory; computability theory; market structure;

    JEL classification:

    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
    • D49 - Microeconomics - - Market Structure, Pricing, and Design - - - Other

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