CONTINGENT PRICES AND MONEY* |
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| Authors: | Richard Dutu Stella Huangfu Benoit Julien |
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| Institution: | 1. Deakin University, Australia;2. University of Sydney, Australia;3. University of New South Wales, Australia |
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| Abstract: | Price posting with directed search is a widely used trading mechanism. Coles and Eeckhout showed that if sellers are allowed to post prices contingent on realized demand instead of one price, then there is real market indeterminacy. In this article, we fit this contingent price‐posting protocol into a monetary economy. We show that, as long as holding money is costly, there exists a unique equilibrium rather than a continuum. In this equilibrium sellers post a low price for when the buyer is alone, a high price for when several buyers show up, and buyers randomize between sellers and money holdings. |
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