Pricing and Market Power under Search Frictions

66 Pages Posted: 14 Dec 2023 Last revised: 15 Feb 2024

See all articles by Jose Carrasco

Jose Carrasco

Escuela de Negocios, Universidad Adolfo Ibañez

Allan Hernandez-Chanto

University of Queensland - School of Economics

Joel Rabenhorst

University of Queensland - School of Economics

Date Written: February 13, 2024

Abstract

We explore the problem of a monopolist selling a stock of a divisible good in a decentralized market to buyers with random downward sloping demands. We consider two pricing structures: dynamic linear pricing and dynamic two-part tariff pricing. For both, we show the seller optimally uses a marginalist approach by equalizing marginal revenue with an endogenous marginal cost. We fully characterize optimal selling behavior and show that (i) the optimal sales quantity increases and the optimal sales price decreases in the stock size, and (ii) the exercise of market power is, in general, greater when the seller holds more stock.

Keywords: Dynamic pricing, Heterogeneous buyers, Intertemporal choice, Multi-unit search, Two-part tariff

JEL Classification: C61, D25, D42, D83

Suggested Citation

Carrasco, Jose and Hernandez-Chanto, Allan and Rabenhorst, Joel, Pricing and Market Power under Search Frictions (February 13, 2024). Available at SSRN: https://ssrn.com/abstract=4637247 or http://dx.doi.org/10.2139/ssrn.4637247

Jose Carrasco

Escuela de Negocios, Universidad Adolfo Ibañez ( email )

2640, Peñalolen
Santiago
Chile

HOME PAGE: http://www.tonocarrasco.com

Allan Hernandez-Chanto

University of Queensland - School of Economics ( email )

Brisbane, QLD 4072
Australia

Joel Rabenhorst (Contact Author)

University of Queensland - School of Economics ( email )

Brisbane, Queensland 4072
Australia

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