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Can forgetful sellers be better off? Impact of information in an ultimatum price-setting game with learning

Christopher Cotton
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Christopher Cotton: Cornell University

Game Theory and Information from EconWPA

Abstract: This paper introduces learning dynamics into a posted-offer pricing game, in which sellers observe past-period transactions before announcing a take-it or leave-it price, and buyers either accept or reject the announced price. We consider the impact that seller access to information regarding past transaction has on the long-term prices, and show that when sellers have imperfect information about the past, the long-term average sale price may be higher than when sellers perfectly observe the entire history of the game. It follows that limiting seller information can improve their long-term average welfare, and total long- term average sales revenue. This has interesting implications regarding firm incentives to provide information to their managers and sales agents.

Keywords: learning; posted price games; limited memory; management incentives (search for similar items in EconPapers)
JEL-codes: C7 D8 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mkt
Date: 2005-10-18
Note: Type of Document - pdf; pages: 41
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