Optimal Pricing, Private Information and Search for an Outside Offer

Sarah Auster (), Nenad Kos () and Salvatore Piccolo ()
Additional contact information
Sarah Auster: University of Bonn
Nenad Kos: Bocconi University, Department of Economics, CEPR and IGIER

No 81, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: A buyer can either buy a good at a local monopolist or search for it in the market at a market price. The more intensely the buyer searches, the more likely he will find the good in the market, whereas if his search fails, he can still buy it from the local monopolist. We show that a buyer with a higher willingness to pay searches (weakly) more intensely. This skews the distribution of types buying at the local monopolist towards lower valuations and exerts pressure on the local monopolist to reduce his price. Despite this effect, offering the monopoly price remains weakly optimal in equilibrium: depending on the parameters, the local monopolist either chooses the monopoly price with probability one or he randomizes over a set of prices with the monopoly price as the upper bound of the support. Interestingly, a higher market price can make it more likely that the local monopolist prices below the monopoly level.

Keywords: Optimal Pricing; Search (search for similar items in EconPapers)
JEL-codes: D82 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2021-04
New Economics Papers: this item is included in nep-com and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_081_2021.pdf First version, 2021 (application/pdf)

Related works:
Working Paper: Optimal Pricing, Private Information and Search For an Outside Offer (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ajk:ajkdps:081

Access Statistics for this paper

More papers in ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany Niebuhrstrasse 5, 53113 Bonn, Germany.
Bibliographic data for series maintained by ECONtribute Office ().