Credible Sales Mechanisms and Intermediaries

Posted: 14 Jan 2008

See all articles by David McAdams

David McAdams

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA)

Michael Schwarz

Yahoo! - Yahoo! Research Labs; National Bureau of Economic Research (NBER)

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Abstract

In this paper, we consider a seller who faces several buyers and lacks access to an institution to credibly close a sale. If buyers anticipate that the seller may negotiate further, they will prefer to wait before making their best and final offers. This in turn induces the seller to bargain at length with buyers, even if doing so is costly. When the seller's cost of soliciting another round of offers is either very large or very small, the seller credibly commits to an auction and experiences negligible bargaining costs. Otherwise, there may be several rounds of increasing offers and significant seller losses. In these situations, an intermediary with a sufficiently valuable reputation and/or weak marginal incentives regarding price can create value by credibly committing to help sell the object without delay.

Keywords: Credible Sales Mechanisms, Intermediaries

JEL Classification: C78, D44

Suggested Citation

McAdams, David and Schwarz, Michael, Credible Sales Mechanisms and Intermediaries. American Economic Review, Vol. 97, No. 1, 2007; MIT Sloan Research Paper No. 4606-06. Available at SSRN: https://ssrn.com/abstract=1083690

David McAdams (Contact Author)

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA) ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States
617-253-1306 (Phone)

Michael Schwarz

Yahoo! - Yahoo! Research Labs ( email )

Sunnyvale, CA 94089

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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