Prices for cash and cash for prices? Theory and evidence on convenient pricing

A transaction between a seller and a buyer incurs a payment cost. The payment cost is borne by the seller, depending on the payment instrument the buyer chooses, cash or card. Card payment is more costly than cash payment, so the seller prefers that the buyer pays cash. In this article, we study the strategy of the seller setting a convenient price, which simplifies transactions and pushes the buyer to pay cash. The theoretical analysis, which models both the seller and the buyer in a game setting, derives two propositions: (1) the seller is more likely to set a more convenient price and (2) the buyer is more likely to pay cash a more convenient price. The empirical analysis supports both propositions. Thus, sellers adopt a convenience pricing strategy – prices for cash – and this strategy pushes buyers to pay cash – cash for prices.     

Dynamic signaling and market breakdown

We consider the effects a public revelation of information (e.g. rating, grade) has on trading in a dynamic signaling model. Competing buyers offer prices to a privately informed seller who can reject them and delay trade. Delay is costly and the seller has no commitment to its duration. The external public information allows for signaling in equilibrium. More interestingly, we characterize the dynamics of trade and prices. If signals are noisy, no trade takes place just before the revelation of external information. If signals are fully revealing, then trade occurs even close to revelation, however, transaction prices are discontinuous.     

Price signaling and the strategic benefits of price rigidities

We analyze trade between a perfectly informed price setting party (seller) and an imperfectly informed price taker (buyer). Differently from most of the literature, we focus on the case in which, under full information, it would be inefficient to trade goods of sufficiently poor quality. We show that the unique equilibrium surviving D1 is characterized by market breakdown, although trade would be mutually beneficial in some state of nature. This occurs independently of the precision of the information available to the buyer. The model thus implies that signaling through prices may exacerbate the effect of adverse selection rather than mitigate it. Under D1, the seller would always benefit from committing to prices that do not reveal her information. We develop this intuition by analyzing the strategic advantages of price rigidities. We show that price rigidities help restore trade and could even enhance effectiveness of prices as signals of quality.     

Repeated Bargaining with Persistent Private Information

The paper analyses repeated contract negotiations involving the same buyer and seller where the contracts are linked because the buyer has persistent (but not full y permanent) private information. The size of the surplus being divided is specified as a two-state Markov chain with transitions that are synchronized with contract negotiation dates. Equilibrium involves information cycles triggered by the success or failure of aggressive demands made by the seller. Because there is persistence in the Markov chain generating the surplus, a successful demand induces the seller to make another aggressive demand in the next negotiation, since the buyer's acceptance reveals that the current surplus is large. Rejection of an aggressive demand, on the other hand, leads the seller to be pessimistic about the size of the surplus in the next contract, so the seller makes a "soft" offer that is sure to be accepted. Then, after several such offers have been accepted, the seller is optimistic enough to again make an aggressive demand, creating an information cycle. An interesting feature of this cycle is that the soft price is not constant, but declines as the cycle continues, so as to offset the buyer's option value of re-starting the cycle when the current state is bad. An explicit mapping is given for the relationship between the basic parameters and the equilibrium prices and quantities; in particular, there is a closed-form solution for the threshold belief that makes the seller indifferent between hard and soft offers.     

Buyer behavior under the Best Offer mechanism: A theoretical model and empirical evidence from eBay Motors

We use data from eBay Best Offer listings to analyze haggling over prices in transactions with one seller and a series of potential buyers for a limited-supply product. We characterize this transaction mechanism as a sequential-move game to investigate buyer behavior. Our model suggests that a buyer's offer price increases in relations to the number of buyers who have previously made an offer on the item and the Buy-It-Now price chosen by the seller. On the other hand, the offer price decreases for items which have been listed on eBay for a longer period of time. We empirically test our theoretical predictions using data on the sales of Toyota Camry cars on eBay Motors. The empirical evidence is consistent with our model.     

Auctions with a buy price: The case of reference-dependent preferences

In an auction with a buy price, the seller provides bidders with an option to end the auction early by accepting a transaction at a posted price. This paper develops a model of an auction with a buy price in which bidders use the auction's reserve price and buy price to formulate a reference price. The model both explains why a revenue-maximizing seller would want to augment her auction with a buy price and demonstrates that the seller sets a higher reserve price when she can affect the bidders' reference price through the auction's reserve price and buy price than when she can affect the bidders' reference price through the auction's reserve price only. The comparative statics properties of bidding behavior are in sharp contrast to equilibrium behavior in other models where the existence and size of the auction's buy price have no effect on bidding behavior.     

Pricing and signaling with frictions

We study a market where each seller chooses the quality and price of goods and the number of selling sites. Observing sellers? choices of prices and sites, but not quality, buyers choose which site to visit. A seller?s choices of prices can direct buyers? search and signal quality. A unique equilibrium exists and is separating. When the quality differential is large, the equilibrium implements the efficient allocation with public information. Otherwise, the quality of goods and/or the number of sites created is inefficient, due to a conflict between the search-directing and signaling roles of prices.     

Sunk costs and fairness in incomplete information bargaining

We study a bilateral trading relationship in which one agent, the seller, can make a nonrecoverable investment in order to generate potential gains from trade. Afterwards, the seller makes a price offer that the buyer can either accept or reject. If agents are fairminded, sellers who are known by the buyer to have high investment costs are predicted to charge higher prices. If the investment cost is private information, low-cost sellers should price more aggressively and high-cost sellers less aggressively than under complete information, giving rise to disagreement and/or underinvestment. Our experiment support these predictions.     

信誉的价值:以网上拍卖交易为例

本文使用网上拍卖交易数据,就卖者信誉对市场交易的影响进行了实证研究。我们发现,卖者的信誉评价一方面影响物品成交的价格,另一方面还对物品拍卖成功的概率有着显著的正面影响;但相对来说,卖者的信誉评价对后者的效果比对前者要更显著。这是本文的主要发现。该结果验证了在一个没有政府干预、近乎自由放任的“虚拟”市场上信誉机制的积极作用。     

Price and information disclosure in the private art market: A signalling game

In this paper, we model private art market agents’ strategic interactions in presence of two types of asymmetric information, about artwork quality and buyer’s knowledge, assuming the seller does not know how informed is the buyer while the buyer does not know the quality of the artwork before purchase. If the seller can choose either a high or a low price and the buyer can signal his type to the seller, we identify the conditions for both equilibria with pooling buyer signalling strategy and with separating strategy, as well as conditions for equilibria where the seller fixes the price according to the actual quality and where he posts prices trying to take advantage of buyer’s limited information. Finally, we identify the condition for the emergence of a “counter-lemon” result, where low-quality artworks and uninformed collectors exit the market, suggesting that seller uncertainty does not directly benefit the buyers, but it can impact the quality traded in the market.     

Price discrimination of buyers with identical preferences and collusion in a model of advertising

A model of advertising and price distributions is investigated whereby each seller can contact different buyers, whose preferences are identical, with different probabilities. The model features a continuum of equilibria parametrized by the ratio of the buyers contacted by one seller—differing across “market segments”—and by the other sellers. In general, the sellers practice price discrimination across segments. More asymmetric equilibria correspond to higher volumes of transactions and higher expected transaction prices. This results in a lower expected utility for the buyers and higher expected profits; thus, identifying areas of influence can help the sellers to support collusion.     

Convergence to perfect competition of a dynamic matching and bargaining market with two-sided incomplete information and exogenous exit rate

Consider a decentralized, dynamic market with an infinite horizon and incomplete information in which buyers and sellers' values for the traded good are private and independently drawn. Time is discrete, each period has length δ, and each unit of time a large number of new buyers and sellers enter the market. Within a period each buyer is matched with a seller and each seller is matched with zero, one, or more buyers. Every seller runs a first price auction with a reservation price and, if trade occurs, the seller and winning buyer exit with their realized utility. Traders who fail to trade either continue in the market to be rematched or exit at an exogenous rate. We show that in all steady state, perfect Bayesian equilibria, as δ approaches zero, equilibrium prices converge to the Walrasian price and realized allocations converge to the competitive allocation.     

Cross-country evidence on the relation between stock prices and the current account

This article explores the relation between stock prices and the current account for 17 Organization for Economic Co-operation and Development (OECD) countries in 1980–2007. A panel Vector Autoregressive (VAR) model is used to compare the effects of stock price shocks to those originating from monetary policy and exchange rates. While monetary policy shocks have little effects, shocks to stock prices and exchange rates have sizeable effects. A 10% contraction in stock prices improves the current account by 0.3% after 2 years. Hence a channel – in addition to the traditional exchange rate channel – is found through which external balance for an OECD country with a current account imbalance can be restored.     

Death and prices

Most experts agree that alcohol abuse has been a major cause of Russia’s soaring mortality rate. But why have ever more Russians been drinking themselves to death? Some attribute this to despair in the face of painful economic change. I present evidence that, in fact, the surge in alcohol‐related deaths – and premature deaths in general – was fuelled by a dramatic fall in the real price of vodka, which dropped 77 percent between December 1990 and December 1994. Variation in vodka prices – both over time and across Russia’s regions – closely matches variation in mortality. Although market competition and weak excise collection help explain the fall in prices, the main reason appears to be populist price regulation during inflationary periods.     

THE DETERMINANTS OF PRICE IN ONLINE AUCTIONS: MORE EVIDENCE FROM QUANTILE REGRESSION

This study explores how seller reputations affect auction prices and concludes that earlier findings may be biased due to the misspecification of seller reputation. This paper contributes to the literature by offering significant empirical evidence using Taiwanese internet auction data. Our study reveals that the influence of seller reputations on auction prices is significant, irrespective of the assumptions of linear or non‐linear relationships with price. However, failure to consider the non‐linear setting of seller reputation leads us to underestimate the impact of reputation when the seller's reputation score is low, but overestimates it when the seller's reputation becomes high. Using quantile regression, this study finds evidence of considerable differences in their impact on auction prices that are dependent on the distribution of price levels.     

政府管制与房价持续上升

本文认为房价持续上升的原因是政府对房地产市场的资本进入限制。消费者对住房的需求旺盛。拉高了房价，房地产公司的利润丰厚。问题是房地产公司为什么能一直保持丰厚的利润？其原因就是政府对房地产市场的资本进入限制所造成的房地产市场的垄断。本文比较了都存在信息不对称性的家庭装修市场和房地产市场不同的市场结构，不同的发展结果。最终得出结论：只有房地产市场的激励竞争才能解决房价持续上涨的根本问题．所以在强化政府这只看得见的手的作用的同时，不要抑制了市场这只看不见的手的作用。     

Exchange Rate Passthrough to Export Prices: Assessing Cross‐Country Evidence*

A growing empirical literature reports evidence of a decline in exchange rate passthrough to import prices in a number of industrial countries. Our paper complements this literature by examining passthrough from the other side of the transaction; that is, we assess the exchange rate sensitivity of export prices (denominated in the exporter's currency). We find that the prices charged on exports to the United States are more responsive to the exchange rate than are export prices to other destinations, which is consistent with results in the literature that import price passthrough in the US market is relatively low. In addition, the exchange rate sensitivity of export prices over time has been significantly affected by country‐ and region‐specific factors, including the Asian financial crisis (for emerging Asia), deepening integration with the United States (for Canada), and the effects of the 1992 ERM crisis (for the United Kingdom).     

Reserve price signaling

In a general auction model in which bidders’ signals are affiliated, we characterize the unique separating equilibrium in which the seller can use reserve prices to credibly signal her private information. When the buyers’ signals are independent, the optimal reserve price is shown to be increasing in the number of bidders under certain conditions. We also demonstrate that the probability that the item is sold at the reserve price can increase as the number of bidders increases, which indicates a more central role for reserve prices than perceived in the standard auction models.     

Ripple effect in house prices and trading volume in the UK housing market: New viewpoint and evidence

This study adopts the data of house prices and trading volume in the overall UK housing market and in the housing markets in the 10 major regions in the UK to estimate the ripple effect in the trading activities in the housing markets. First, this study details why the ripple effect occurs in the housing market price and volume using static and cobweb dynamic models. The results of the panel-based unit root tests indicate that the relative price and volume ratios show constancy, signifying that long-run equilibrium relationships exist between the regional and national housing markets in the UK. The frequency of the transaction volume convergence behavior is higher than that of the overall house prices.     

Efficient collusion in optimal auctions

We study collusion in an IPV auction with binary type spaces. Collusion is organized by a third party that can manipulate participation decisions. We characterize the optimal response of the seller to different threats of collusion among the bidders. We show that, contrary to the prevailing view that asymmetric information imposes transaction costs in side contracting, collusion in the optimal auction is efficient when the third party can implement monetary transfers as well as when it can implement monetary transfers and reallocations of the good. The threat of non-participation in the auction by a subset of bidders is crucial in constraining the seller's profit.