Trading mechanism selection with directed search when buyers are risk averse

Cemil Selcuk

Economics Letters, 2012, vol. 115, issue 2, 207-210

Abstract: We endogenize the trading mechanism selection in a model of directed search with risk averse buyers and show that the unique symmetric equilibrium entails all sellers using fixed price trading. Mechanisms that prescribe the sale price as a function of the realized demand (auctions, bargaining, discount pricing, etc.) expose buyers to the “price risk”, the uncertainty of not knowing how much to pay in advance. Fixed price trading eliminates the price risk, which is why risk averse customers accept paying more to shop at such stores.

Keywords: Directed search; Competing mechanisms; Risk aversion (search for similar items in EconPapers)
JEL-codes: D4 D81 D83 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Working Paper: Trading Mechanism Selection with Directed Search when Buyers are Risk Averse (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:115:y:2012:i:2:p:207-210

DOI: 10.1016/j.econlet.2011.12.012

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