Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Friday, April 12, 2013

Competing with Asking Prices

Posted by D. Daniel Sokol

Benjamin R. Lester (Federal Reserve Bank of Philadelphia), Ludo Visschers (Universidad Carlos III de Madrid) and Ronald Wolthoff (University of Toronto) have a paper on Competing with Asking Prices.

ABSTRACT: 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.

http://lawprofessors.typepad.com/antitrustprof_blog/2013/04/competing-with-asking-prices-.html

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