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Competing with Asking Prices

  • Benjamin Lester
  • Ludo Visschers
  • Ronald Wolthoff

In many markets, sellers advertise their good with an asking price. This is a price at which the seller is willing to take his good off the market and trade immediately, though it is understood that a buyer can submit an offer below the asking price and that this offer may be accepted if the seller receives no better offers. Despite their prevalence in a variety of real world markets, asking prices have received little attention in the academic literature. We construct an environment with a few simple, realistic ingredients and demonstrate that using an asking price is optimal: it is the pricing mechanism that maximizes sellers' revenues and it implements the efficient outcome in equilibrium. We provide a complete characterization of this equilibrium and use it to explore the positive implications of this pricing mechanism for transaction prices and allocations.

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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-471.

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Length: Unknown pages
Date of creation: 16 Jan 2013
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Handle: RePEc:tor:tecipa:tecipa-471
Contact details of provider: Postal: 150 St. George Street, Toronto, Ontario
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  1. 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.
  2. Jeremy Bulow & Paul Klemperer, 2009. "Why Do Sellers (Usually) Prefer Auctions?," Economics Papers 2009-W05, Economics Group, Nuffield College, University of Oxford.
  3. Richard Engelbrecht-Wiggans, 1987. "On Optimal Reservation Prices in Auctions," Management Science, INFORMS, vol. 33(6), pages 763-770, June.
  4. Burguet, Roberto & Sakovics, Jozsef, 1999. "Imperfect Competition in Auction Designs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(1), pages 231-47, February.
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  6. Stanley Reynolds & John Wooders, 2009. "Auctions with a buy price," Economic Theory, Springer, vol. 38(1), pages 9-39, January.
  7. Delacroix, Alain & Shi, Shouyong, 2013. "Pricing and signaling with frictions," Journal of Economic Theory, Elsevier, vol. 148(4), pages 1301-1332.
  8. Karl E. Case & Robert J. Shiller, 2003. "Is There a Bubble in the Housing Market?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(2), pages 299-362.
  9. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  10. Guido Menzio, 2007. "A Theory of Partially Directed Search," Journal of Political Economy, University of Chicago Press, vol. 115(5), pages 748-769, October.
  11. Kim, Kyungmin & Kircher, Philipp, 2012. "Efficient Cheap Talk in Directed Search: On the Non-essentiality of Commitment in Market Games," CEPR Discussion Papers 8759, C.E.P.R. Discussion Papers.
  12. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
  13. James W. Roberts & Andrew Sweeting, 2013. "When Should Sellers Use Auctions?," American Economic Review, American Economic Association, vol. 103(5), pages 1830-61, August.
  14. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  15. Lippman, Steven A & McCall, John J, 1976. "The Economics of Job Search: A Survey: Part I," Economic Inquiry, Western Economic Association International, vol. 14(2), pages 155-89, June.
  16. Preston McAfee, R. & McMillan, John, 1988. "Search mechanisms," Journal of Economic Theory, Elsevier, vol. 44(1), pages 99-123, February.
  17. Crémer, Jacques & Spiegel, Yossi & Zheng, Charles Zhoucheng, 2007. "Auctions with Costly Information Acquisition," Staff General Research Papers 12709, Iowa State University, Department of Economics.
  18. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  19. Yongmin Chen & Robert W. Rosenthal, 1993. "Asking Prices as Commitment Devices," Papers 0042, Boston University - Industry Studies Programme.
  20. Michael Peters, 1995. "A Competitive Distribution of Auctions," Working Papers peters-95-03, University of Toronto, Department of Economics.
  21. 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.
  22. Derek G. Stacey, 2012. "Information, Commitment, and Separation in Illiquid Housing Markets," Working Papers 1289, Queen's University, Department of Economics.
  23. Ehrman, Carl & Peters, Michael, 1994. "Sequential Selling Mechanisms," Economic Theory, Springer, vol. 4(2), pages 237-53, March.
  24. Daron Acemoglu & Robert Shimer, 1998. "Efficient Unemployment Insurance," NBER Working Papers 6686, National Bureau of Economic Research, Inc.
  25. repec:cup:cbooks:9780521536721 is not listed on IDEAS
  26. Morgan, Peter & Manning, Richard, 1985. "Optimal Search," Econometrica, Econometric Society, vol. 53(4), pages 923-44, July.
  27. Pancs, Romans, 2013. "Sequential negotiations with costly information acquisition," Games and Economic Behavior, Elsevier, vol. 82(C), pages 522-543.
  28. Michael A. Arnold, 1999. "Search, Bargaining and Optimal Asking Prices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(3), pages 453-481.
  29. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, vol. 75(4), pages 676-90, September.
  30. Burguet, Roberto, 1996. "Optimal Repeated Purchases When Sellers Are Learning about Costs," Journal of Economic Theory, Elsevier, vol. 68(2), pages 440-455, February.
  31. Timothy Mathews, 2004. "The Impact of Discounting on an Auction with a Buyout Option: a Theoretical Analysis Motivated by eBay’s Buy-It-Now Feature," Journal of Economics, Springer, vol. 81(1), pages 25-52, 01.
  32. Xianwen Shi, 2007. "Optimal Auctions with Information Acquisition," Working Papers tecipa-302, University of Toronto, Department of Economics.
  33. Budish, Eric B. & Takeyama, Lisa N., 2001. "Buy prices in online auctions: irrationality on the internet?," Economics Letters, Elsevier, vol. 72(3), pages 325-333, September.
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  35. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
  36. Albrecht, James & Gautier, Pieter & Vroman, Susan, 2012. "A note on Peters and Severinov, “Competition among sellers who offer auctions instead of prices”," Journal of Economic Theory, Elsevier, vol. 147(1), pages 389-392.
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