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On the Robustness of Pricing Mechanisms

Author

Listed:
  • Han Han Peking

    (University School of Economics)

  • Benoit Julien

    (UNSW Sydney)

  • Liang Wang

    (University of Hawaii Manoa)

Abstract

We study the robustness of two well-known and frequently observed multilateral trading protocols, price posting and auction, in small markets. In the context of directed search, sellers choose and commit to an ex-ante trading protocol to attract buyers. When constructing equilibrium, the deviating seller usually chooses the same mechanism as non-deviating sellers. In this paper, however, we allow the deviating seller to bargain with a buyer. In this setup, we find that price posting and auction are not robust mechanisms, because there is always a profitable deviation of bargaining. Then, we introduce a new hybrid multilateral trading protocol, which combines auction and bargaining. We show that when sellers commit to such a mechanism, the equilibrium is robust to deviations of bargaining.

Suggested Citation

  • Han Han Peking & Benoit Julien & Liang Wang, 2021. "On the Robustness of Pricing Mechanisms," Working Papers 202105, University of Hawaii at Manoa, Department of Economics.
    • Handle: RePEc:hai:wpaper:202106
    as

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    References listed on IDEAS

    as
    1. Kultti, Klaus, 1999. "Equivalence of Auctions and Posted Prices," Games and Economic Behavior, Elsevier, vol. 27(1), pages 106-113, April.
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    More about this item

    Keywords

    Housing market; Auction; Bargaining; Directed Search; Price Posting;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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