Price skimming: Commitment and delay in bargaining with outside option

Dongkyu Chang; Jong Jae Lee

doi:10.1016/j.jet.2022.105528

Price skimming: Commitment and delay in bargaining with outside option

Dongkyu Chang, Jong Jae Lee^*

^*Corresponding author for this work

Department of Economics and Finance

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

3 Citations (Scopus)

86 Downloads (CityUHK Scholars)

Abstract

This paper studies a bargaining problem in which the buyer's valuation and outside option are private information. We show 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). Our innovation is to show that (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.

Original language	English
Article number	105528
Number of pages	47
Journal	Journal of Economic Theory
Volume	205
DOIs	https://doi.org/10.1016/j.jet.2022.105528
Publication status	Published - Oct 2022

Funding

We are deeply grateful to Yeon-Koo Che, Ying Chen, In-Koo Cho, Johannes Hörner, Ilwoo Hwang, M. Ali Khan, Jinwoo Kim, Stephan Lauermann, Frances Xu Lee, Qingmin Liu, Juan Ortner, Larry Samuelson, Yasuhiro Shirata, Andrzej Skrzypacz, and Renkun Yang for their thought-provoking correspondence and discussion. We also thank the participants of various seminars and conferences. This paper has also benefited from the careful reading and constructive comments of the editor and anonymous referees. The work described in this paper was supported by a grant from the Research Grants Council of the Hong Kong Special Administrative Region, China (Project No. CityU 21506616). We are deeply grateful to Yeon-Koo Che, Ying Chen, In-Koo Cho, Johannes Hörner, Ilwoo Hwang, M. Ali Khan, Jinwoo Kim, Stephan Lauermann, Frances Xu Lee, Qingmin Liu, Juan Ortner, Larry Samuelson, Yasuhiro Shirata, Andrzej Skrzypacz, and Renkun Yang for their thought-provoking correspondence and discussion. We also thank the participants of various seminars and conferences. This paper has also benefited from the careful reading and constructive comments of the editor and anonymous referees. The work described in this paper was supported by a grant from the Research Grants Council of the Hong Kong Special Administrative Region , China (Project No. CityU 21506616 ).

Research Keywords

Bargaining
Coase conjecture
Commitment
Outside option
Positive selection
Price skimming

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COPYRIGHT TERMS OF DEPOSITED POSTPRINT FILE: © 2022. This manuscript version is made available under the CC-BY-NC-ND 4.0 license https://creativecommons.org/licenses/by-nc-nd/4.0/.

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title = "Price skimming: Commitment and delay in bargaining with outside option",

abstract = "This paper studies a bargaining problem in which the buyer's valuation and outside option are private information. We show 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). Our innovation is to show that (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.",

keywords = "Bargaining, Coase conjecture, Commitment, Outside option, Positive selection, Price skimming",

author = "Dongkyu Chang and Lee, {Jong Jae}",

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year = "2022",

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language = "English",

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N2 - This paper studies a bargaining problem in which the buyer's valuation and outside option are private information. We show 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). Our innovation is to show that (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.

AB - This paper studies a bargaining problem in which the buyer's valuation and outside option are private information. We show 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). Our innovation is to show that (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.

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ER -

Price skimming: Commitment and delay in bargaining with outside option

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ECS: Bargaining with Outside Options and Asymmetric Information

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Price skimming: Commitment and delay in bargaining with outside option

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ECS: Bargaining with Outside Options and Asymmetric Information

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