On the Robustness of Pricing Mechanisms

Han Han Peking (), Benoit Julien and Liang Wang ()
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Han Han Peking: University School of Economics
Liang Wang: University of Hawaii Manoa

No 202105, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: We study the robustness of two well-known and frequently observed multilateral trading protocols, price posting and auction, in small markets. In the context of directed search, sellers choose and commit to an ex-ante trading protocol to attract buyers. When constructing equilibrium, the deviating seller usually chooses the same mechanism as non-deviating sellers. In this paper, however, we allow the deviating seller to bargain with a buyer. In this setup, we find that price posting and auction are not robust mechanisms, because there is always a profitable deviation of bargaining. Then, we introduce a new hybrid multilateral trading protocol, which combines auction and bargaining. We show that when sellers commit to such a mechanism, the equilibrium is robust to deviations of bargaining.

Keywords: Housing market; Auction; Bargaining; Directed Search; Price Posting (search for similar items in EconPapers)
JEL-codes: D40 D83 E40 (search for similar items in EconPapers)
Date: 2021-12
New Economics Papers: this item is included in nep-cwa, nep-des and nep-mic
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