Price skimming: commitment and delay in bargaining with outside option
The renowned Coase conjecture implies that price skimming and the lack of commitment may not coexist: without precommitment, the seller is forced to charge an initial price equal to the buyer's lowest valuation, and all sales must occur immediately. The reasoning behind this so-called Coasean equilibrium is as follows. The seller's contemplated price reduction causes the buyer to reject the current price offer and wait for the next offer. Thus, the seller is tempted to hastily reduce the price over time. Such a price reduction becomes arbitrarily frequent, and the seller ends up charging an initial price low enough to clear the market. In this article, the authors show that price skimming naturally arises in equilibrium despite a complete lack of seller's commitment, when the buyer has a type-dependent outside option studied in [\textit{D. Chang}, J. Econ. Theory 195, Article ID 105279, 27 p. (2021; Zbl 1470.91126)]. It is more precisely proven that there exists a non-stationary equilibrium in which the seller can secure full commitment profit (from the optimal sales mechanism that exhibits price skimming) if and only if the buyer's outside option takes a zero value with positive probability (non-negligibly zero outside option). The main result is contained in the following statement: (i) both the Coasean reversion and positive selection are necessary for the seller to secure the full commitment profit and (ii) the Coasean equilibria may coexist with positive selection despite their claimed incompatibility if the non-negligibly zero outside option exists. The reader can find a relatively complete bibliography on this interesting subject.
- Optimal Price Skimming by a Monopolist Facing Rational Consumers
- Bargaining and delay: The role of external information
- Delay in the alternating-offers model of bargaining
- Bargaining delay under partial breakdowns and externalities
- Bargaining and search with incomplete information about outside options
- Bargaining or searching for a better price? An experimental study
- Bargaining with durable offers and endogenous timing
- Cyclical Delay in Bargaining with Externalities
- The hidden cost of bargaining: evidence from a cheating-prone marketplace
- A direct mechanism characterization of sequential bargaining with one- sided incomplete information
- A theory of bargaining deadlock
- An introduction to the theory of mechanism design. With contributions by Daniel Krähmer and Roland Strausz
- Bargaining and Strikes
- Contract negotiation and the Coase conjecture: a strategic foundation for renegotiation-proof contracts
- Envelope Theorems for Arbitrary Choice Sets
- Foundations of dynamic monopoly and the Coase conjecture
- Game theory
- scientific article; zbMATH DE number 3222422 (Why is no real title available?)
- Intertemporal Price Discrimination
- Monotone Comparative Statics
- Negotiation Analysis: A Characterization and Review
- Optimal sales mechanism with outside options
- Reputation in Bargaining and Durable Goods Monopoly
- Skimming or penetration: optimal pricing of new fashion products in the presence of strategic consumers
- Transparency of outside options in bargaining
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