Optimal selling mechanisms with buyer price search

Jingfeng Lu and Zijia Wang

Journal of Economic Theory, 2021, vol. 196, issue C

Abstract: We study optimal dynamic selling mechanisms in a two-stage model where the buyer can search for a better price at the second stage. When this outside price is public, the optimal selling mechanism takes the form of a fixed first-stage price with price matching in the second stage. In contrast, when the outside price is the buyer's private information, the optimal mechanism is a menu of two contracts: a first-stage sale at a higher price with immediate delivery, or a first-stage sale at a lower price with second-stage delivery. Thus the optimal form of search deterrence depends on the observability of the buyer's outside option.

Keywords: Dynamic mechanism design; Outside option; Price search; Price matching; Search deterrence (search for similar items in EconPapers)
JEL-codes: D11 D82 D86 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:196:y:2021:i:c:s0022053121001241

DOI: 10.1016/j.jet.2021.105307

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