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Price skimming: Commitment and delay in bargaining with outside option

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  • Chang, Dongkyu
  • Lee, Jong Jae

Abstract

This paper studies a bargaining problem in which the buyer's valuation and outside option are private information. We show that there exists a non-stationary equilibrium in which the seller can secure full commitment profit (from the optimal sales mechanism that exhibits price skimming) if and only if the buyer's outside option takes a zero value with positive probability (non-negligibly zero outside option). Our innovation is to show that (i) both the Coasean reversion and positive selection are necessary for the seller to secure the full commitment profit and (ii) the Coasean equilibria may coexist with positive selection despite their claimed incompatibility if the non-negligibly zero outside option exists.

Suggested Citation

  • Chang, Dongkyu & Lee, Jong Jae, 2022. "Price skimming: Commitment and delay in bargaining with outside option," Journal of Economic Theory, Elsevier, vol. 205(C).
    • Handle: RePEc:eee:jetheo:v:205:y:2022:i:c:s0022053122001181
    DOI: 10.1016/j.jet.2022.105528
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    Cited by:

    1. Lotfi, Ali & Naoum-Sawaya, Joe & Lotfi, Aslan & Jiang, Zhengrui, 2024. "To Skim or not to Skim: Studying the Optimal Pricing Strategy for Technology Products," Omega, Elsevier, vol. 127(C).

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    More about this item

    Keywords

    Bargaining; Outside option; Commitment; Price skimming; Coase conjecture; Positive selection;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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