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Competing with Asking Prices

Author

Listed:
  • Benjamin Lester
  • Ludo Visschers
  • Ronald Wolthoff
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.

Suggested Citation

  • Benjamin Lester & Ludo Visschers & Ronald Wolthoff, 2013. "Competing with Asking Prices," Working Papers tecipa-471, University of Toronto, Department of Economics.
    • Handle: RePEc:tor:tecipa:tecipa-471
    as

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    References listed on IDEAS

    as
    1. 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.
    2. Jeremy Bulow & Paul Klemperer, 2009. "Why Do Sellers (Usually) Prefer Auctions?," American Economic Review, American Economic Association, vol. 99(4), pages 1544-75, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Asking Prices; Competing Mechanism Design; Auctions with Entry; Competitive Search;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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