Selcuk, Cemil (2011): Trading Mechanism Selection with Directed Search when Buyers are Risk Averse. Forthcoming in: Economics Letters
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We endogenize the trading mechanism selection in a model of directed search with risk averse buyers and show that the unique symmetric equilibrium entails all sellers using fixed price trading. Mechanisms that prescribe the sale price as a function of the realized demand (auctions, bargaining, discount pricing, etc.) expose buyers to the "price risk", the uncertainty of not knowing how much to pay in advance. Fixed price trading eliminates the price risk, which is why risk averse customers accept paying more to shop at such stores.
|Item Type:||MPRA Paper|
|Original Title:||Trading Mechanism Selection with Directed Search when Buyers are Risk Averse|
|Keywords:||Directed Search, Competing Mechanisms, Risk Aversion|
|Subjects:||D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty
D - Microeconomics > D4 - Market Structure, Pricing, and Design > D40 - General
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness
|Depositing User:||Cemil Selcuk|
|Date Deposited:||27. Jan 2012 19:05|
|Last Modified:||28. Feb 2013 21:46|
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