Trading Mechanism Selection with Directed Search when Buyers are Risk Averse

Cemil Selcuk

MPRA Paper from University Library of Munich, Germany

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: D40 D81 D83 (search for similar items in EconPapers)
Date: 2011
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https://mpra.ub.uni-muenchen.de/36224/1/MPRA_paper_36224.pdf original version (application/pdf)

Related works:
Journal Article: Trading mechanism selection with directed search when buyers are risk averse (2012)
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