Posted Prices versus Bargaining in Markets with Asymmetric Information
Michael Arnold () and
Steven A Lippman
Economic Inquiry, 1998, vol. 36, issue 3, 450-57
A search model is employed to analyze the choice between posting a price and bargaining for the seller of an asset who is imperfectly informed about both buyer valuations and buyer bargaining abilities. A mean preserving increase in risk of buyer valuations is relevant, and beneficial, to the seller; however, only the mean, and not the distribution, of buyer bargaining abilities is relevant. If the mean of buyer bargaining abilities is sufficiently high, the seller utilizes a posted price. Interestingly, social welfare decreases in the mean of buyer bargaining abilities; while an increase in the mean of buyer bargaining abilities reduces expected search costs, it also results in misallocation of the good because the seller is less discriminating. Copyright 1998 by Oxford University Press.
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