Contingent Prices and Money

18 Pages Posted: 25 Nov 2011

See all articles by Richard Dutu

Richard Dutu

University of Waikato

Stella Huangfu

affiliation not provided to SSRN

Benoit Julien

School of Economics, UNSW Business School, UNSW Australia

Date Written: November 2011

Abstract

Price posting with directed search is a widely used trading mechanism. Coles and Eeckhout showed that if sellers are allowed to post prices contingent on realized demand instead of one price, then there is real market indeterminacy. In this article, we fit this contingent priceā€posting protocol into a monetary economy. We show that, as long as holding money is costly, there exists a unique equilibrium rather than a continuum. In this equilibrium sellers post a low price for when the buyer is alone, a high price for when several buyers show up, and buyers randomize between sellers and money holdings.

Suggested Citation

Dutu, Richard and Huangfu, Stella and Julien, Benoit, Contingent Prices and Money (November 2011). International Economic Review, Vol. 52, Issue 4, pp. 1291-1308, 2011. Available at SSRN: https://ssrn.com/abstract=1964494 or http://dx.doi.org/10.1111/j.1468-2354.2011.00668.x

Richard Dutu (Contact Author)

University of Waikato ( email )

Te Raupapa
Private Bag 3105
Hamilton, 3240
New Zealand

Stella Huangfu

affiliation not provided to SSRN

No Address Available

Benoit Julien

School of Economics, UNSW Business School, UNSW Australia ( email )

Gate 11, Botany Street, Randwick
Sydney, NSW 2052
Australia

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