Theoretical Economics, Volume 12, Number 2 (May 2017)

Theoretical Economics 12 (2017), 731–770

Competing with asking prices

Benjamin Lester, Ludo Visschers, Ronald Wolthoff


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.

Keywords: Asking prices, posted prices, auctions, competing mechanisms, competitive search

JEL classification: C78, D44, D82, D83, R31

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