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Learning buyers' valuation distribution in posted-price selling

Author

Listed:
  • Ruqu Wang

    (Department of Economics, Queen's University, Kingston, Ontario, K7L 3N6, CANADA)

  • Yongmin Chen

    (Department of Economics, University of Colorado at Boulder, Campus Box 256, Boulder, CO 80309, USA)

Abstract

A dynamic pricing model is studied where a seller of an asset faces a sequence of potential buyers whose valuation distribution is unknown to the seller. The seller learns more about the distribution in the selling process and becomes less optimistic as the object remains unsold. We characterize the optimal posted prices which incorporate updated beliefs every period, and derive a rather tight sufficient condition under which these prices decline over time. An example is provided where the optimal prices can actually increase over time if the condition is violated.

Suggested Citation

  • Ruqu Wang & Yongmin Chen, 1999. "Learning buyers' valuation distribution in posted-price selling," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 14(2), pages 417-428.
    • Handle: RePEc:spr:joecth:v:14:y:1999:i:2:p:417-428
    Note: Received: May 12, 1998; revised version: July 7, 1998
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    Cited by:

    1. Walter Beckert, 2004. "Dynamic Monopolies with Stochastic Demand," Birkbeck Working Papers in Economics and Finance 0404, Birkbeck, Department of Economics, Mathematics & Statistics.
    2. H. Müge Yayla‐Küllü & Jennifer K. Ryan & Jayashankar M. Swaminathan, 2021. "Product Line Flexibility for Agile and Adaptable Operations," Production and Operations Management, Production and Operations Management Society, vol. 30(3), pages 725-737, March.
    3. Gershkov, Alex & Moldovanu, Benny, 2012. "Optimal search, learning and implementation," Journal of Economic Theory, Elsevier, vol. 147(3), pages 881-909.
    4. Benny Moldovanu & Alex Gershkov, 2008. "The Trade-off Between Fast Learning and Dynamic Efficiency," 2008 Meeting Papers 348, Society for Economic Dynamics.

    More about this item

    Keywords

    Price determination; Posted-price selling; Learning.;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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