Trading mechanism selection with directed search when buyers are risk averse

Selcuk, Cemil ORCID: https://orcid.org/0000-0002-2267-604X 2012. Trading mechanism selection with directed search when buyers are risk averse. Economics Letters 115 (2) , pp. 207-210. 10.1016/j.econlet.2011.12.012

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Abstract

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:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > H Social Sciences (General) H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management H Social Sciences > HF Commerce H Social Sciences > HG Finance
Uncontrolled Keywords:	Directed search; Competing mechanisms; Risk aversion
Publisher:	Elsevier
ISSN:	0165-1765
Last Modified:	19 Oct 2022 09:46
URI:	https://orca.cardiff.ac.uk/id/eprint/22148

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