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Asking Price Mechanism with Dynamic Arrivals

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Abstract

This paper studies a popular selling mechanism relevant to the Australian housing market in which the seller of the object posts an asking price to attract potential buyers for further negotiations. The game is studied in a dynamic setting with the possibility of more than one potential buyer arriving at each period. The game is designed such that in the event when only one buyer arrives, the seller engages in negotiation with that buyer and when two or more buyers arrive, the seller runs an auction with a reserve price. We show the conditions under which this mechanism can extract more expected payoffs to the seller comparing to a uniform price selling or an standard auction. The selling mechanism we study is applicable to many real world markets, specially the housing market of Australia and adds to the theoretical literature by explaining why sometimes sale prices are higher than the asking prices. We also explain the role of the asking price in the relevant markets. Other small variations of this mechanism are also studied for the purposes of comparison.

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  • Peyman Khezr & Abhijit Sengupta, 2014. "Asking Price Mechanism with Dynamic Arrivals," Discussion Papers Series 524, School of Economics, University of Queensland, Australia.
    • Handle: RePEc:qld:uq2004:524
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    File URL: https://economics.uq.edu.au/files/46005/524.pdf
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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
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    Cited by:

    1. GLUMAC Brano & DES ROSIERS François, 2018. "Real estate and land property automated valuation systems: A taxonomy and conceptual model," LISER Working Paper Series 2018-09, Luxembourg Institute of Socio-Economic Research (LISER).

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