Competing with Asking Prices
Author | : Benjamin R. Lester |
Publisher | : |
Total Pages | : 43 |
Release | : 2013 |
ISBN-10 | : OCLC:827716168 |
ISBN-13 | : |
Rating | : 4/5 (68 Downloads) |
Book excerpt: 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.