Competing with asking prices

Benjamin Lester, Lodewijk Visschers, Ronald Wolthoff

Research output: Contribution to journalArticlepeer-review

Abstract

In many markets, sellers advertise their good with an asking price. This is a price at which the seller will 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. We construct an environment with a few simple, realistic ingredients and demonstrate that, by using an asking price, sellers both maximize their revenue and implement the efficient outcome in equilibrium. We provide a complete characterization of this equilibrium and use it to explore the implications of this pricing mechanism for transaction prices and allocations.
Original languageEnglish
Pages (from-to)731-770
JournalTheoretical Economics
Volume12
Issue number2
Early online date26 May 2017
DOIs
Publication statusPublished - May 2017

Keywords

  • asking prices
  • posted prices
  • auctions
  • competing mechanisms
  • competitive search

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