Asking Price and Price Discounts: The Strategy of Selling an Asset Under Price Uncertainty |
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Authors: | Tapan Biswas Jolian Mchardy |
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Institution: | (1) Centre for Economic Policy, University of Hull, Cottingham Road, Hull, HU6 7RX, UK;(2) Department of Economics, University of Sheffield, 9 Mappin Street, Sheffield, S1 4DT, UK |
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Abstract: | We consider fixed and asking price strategies in the context of selling an asset with Bernoullian updating of the seller’s
subjective probability of sale at a given price. The determination of optimal fixed, asking and endogenous reservation prices
is discussed under risk-neutrality and expected utility maximisation. With risk-neutrality, the optimal asking price exceeds
the optimal fixed price when the expected gain is a strictly concave function. The seller’s choice between the fixed and the
asking price strategies depends on several factors: the expected cost of haggling, price competition and the seller’s attitude
towards risk. |
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Keywords: | fixed price asking price price discounts reservation price risk attitude |
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