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Does the seller of a house facing a large number of buyers always decrease its price when its first offer is rejected?

Author

Listed:
  • GABSZEWICZ, Jean J.

    (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)

  • VAN YPERSELE, Tanguy

    (GREQAM, Université de la Méditerrannée)

  • ZANAJ, Skerdilajda

    (CREA, University of Luxembourg)

Abstract

This paper identifies the optimal two-period price sequence in the attempt for selling a good, with take-it-or-leave-it offers, when the seller faces ambiguity about the buyers' willingness to pay. If the first round fails, the seller updates its beliefs on the state of the market in accordance with Bayes rule and quotes a second and final price. We show that the optimal sequence of prices can be increasing. Furthermore, we describe the optimal sequence of prices with a myopic seller who does not update his beliefs in the second period. In this case, the optimal price sequence is always decreasing.

Suggested Citation

  • GABSZEWICZ, Jean J. & VAN YPERSELE, Tanguy & ZANAJ, Skerdilajda, 2011. "Does the seller of a house facing a large number of buyers always decrease its price when its first offer is rejected?," LIDAM Discussion Papers CORE 2011049, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2011049
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    ambiguity; sequential bilateral trade; bayesian vs myopic behaviour;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other

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