Asking Price Mechanism with Dynamic Arrivals

Peyman Khezr and Abhijit Sengupta
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Abhijit Sengupta: School of Economics, The University of New South Wales

No 524, Discussion Papers Series from University of Queensland, School of Economics

Abstract: This paper studies a popular selling mechanism relevant to the Australian housing market in which the seller of the object posts an asking price to attract potential buyers for further negotiations. The game is studied in a dynamic setting with the possibility of more than one potential buyer arriving at each period. The game is designed such that in the event when only one buyer arrives, the seller engages in negotiation with that buyer and when two or more buyers arrive, the seller runs an auction with a reserve price. We show the conditions under which this mechanism can extract more expected payoffs to the seller comparing to a uniform price selling or an standard auction. The selling mechanism we study is applicable to many real world markets, specially the housing market of Australia and adds to the theoretical literature by explaining why sometimes sale prices are higher than the asking prices. We also explain the role of the asking price in the relevant markets. Other small variations of this mechanism are also studied for the purposes of comparison.

Date: 2014-06-18
New Economics Papers: this item is included in nep-com and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:qld:uq2004:524

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