Competing with Asking Prices

45 Pages Posted: 2 Feb 2013

See all articles by Benjamin R. Lester

Benjamin R. Lester

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Ludo Visschers

Charles III University of Madrid - Department of Economics

Ronald P. Wolthoff

University of Toronto - Department of Economics; IZA Institute of Labor Economics

Multiple version iconThere are 3 versions of this paper

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.

Keywords: asking prices, competing mechanism design, auctions with entry, competitive search

JEL Classification: C78, D21, D44, D47, D82, D83, L11, R31

Suggested Citation

Lester, Benjamin R. and Visschers, Ludo and Wolthoff, Ronald P. and Wolthoff, Ronald P., Competing with Asking Prices. IZA Discussion Paper No. 7163, Available at SSRN: https://ssrn.com/abstract=2210823 or http://dx.doi.org/10.2139/ssrn.2210823

Benjamin R. Lester (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

HOME PAGE: http://sites.google.com/site/benjaminrlester

Ludo Visschers

Charles III University of Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain

Ronald P. Wolthoff

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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