Competing with asking prices

Abstract

In many markets, sellers advertise their good with an asking price. This is a price at which the seller will take his good off the market and trade immediately, though it is understood that a buyer can submit an offer below the asking price and that this offer may be accepted if the seller receives no better offers. We construct an environment with a few simple, realistic ingredients and demonstrate that, by using an asking price, sellers both maximize their revenue and implement the efficient outcome in equilibrium. We provide a complete characterization of this equilibrium and use it to explore the implications of this pricing mechanism for transaction prices and allocations.

Predictive Capacity of Asking Price on Property Sales Price in Emerging Market: Evidence From Lagos, Nigeria

“…This asking price, also called listing price, is the price that the seller places on the property on sale. It is a price at which a seller commits to taking his good off the market and trading immediately (Lester, Visschers and Wolthoff, 2013). The determination of the price may results from valuation estimate or estimate from recent comparable properties.…”

“…The paper distinguishes itself from previous studies by focusing on the relationship among asking prices, time-on-market and sales prices of properties especially from emerging market point of view. Previous studies have focused on either the relationships between time-on-market and sales prices (Asabare and Huffman 1993;Jud, Winker and Kissling 1995) or the relationship between asking prices and sales prices of properties (Lester, Visschers and Wolthoff, 2013;Han and Strange 2012). Studies such as Lehner (2011), though modeled housing prices in Singapore by applying spatial hedonic regression, the focus of the studies was on developed markets.…”

Posted prices, search and bargaining

“…While these directed search models with limited commitment to posted prices predict transaction prices that sometimes differ from those advertised, the implied price distributions do not resemble those observed in the market for STLs. Furthermore, the absence of any heterogeneity in the quality or characteristics of the assets being traded rules out explanations related to idiosyncratic quality and/or costly inspection (e.g., Chen andRosenthal, 1996a and1996b;Arnold, 1999;and Lester, Visschers, and Wolthoff, 2017). In this paper, accounting for price distributions like those in Figure 6 requires the opportunity for both sides of the market to post meaningful prices that 21 The search models presented in these papers are appropriate for studying markets that are sufficiently active or unbalanced that multilateral (i.e., many-to-one) matches are common.…”

“…The strategic role of an ask price is therefore somewhat related to that in Chen and Rosenthal (1996a,b) and Arnold (1999), where a seller sets an asking price to effect a price ceiling which encourages a buyer to incur the cost of inspecting the item for sale. 1 In an environment where sellers compete for buyers, Lester, Visschers, and Wolthoff (2017) show that an asking price mechanism provides both an appropriate means of attracting buyers and sufficient motivation to incur the inspection cost. Even in the absence of idiosyncratic values (observable or otherwise) and costly inspection, I show that an appropriately chosen ask price should appeal to buyers if it insures them against detrimental outcomes in price negotiations.…”

Sequentially Mixed Search and Equilibrium Price Dispersion

“…Three additional contrasts to previous work are useful. First, some papers have allowed stayers to direct visitors' search with mechanisms instead of prices, e.g., auctions with reserve prices (Julien et al, 2000), potentially vague messages (Menzio, 2007), list prices with bargaining (Stacey, 2015) or with sequential inspection (Lester et al, 2017), and auctions with cheap talk (Kim and Kircher, 2015). A common assumption of these models is that a visitor cannot participate in more than one stayer's mechanism and, hence, cannot have multiple meetings that occur in SMS.…”