Asking Price and Price Discounts: the Strategy of Selling an Asset under Price Uncertainty

Authors

  • Tapan Biswas University of Hull
  • Jolian McHardy University of Sheffield

DOI:

https://doi.org/10.15353/rea.v4i1.1532

Abstract

We consider fixed and asking price strategies in the context of selling an asset with Bernoullian updating of the seller’s subjective probability of sale at a given price. The determination of optimal fixed, asking and endogenous reservation prices is discussed under risk-neutrality and expected utility maximisation. With risk-neutrality, the optimal asking price exceeds the optimal fixed price when the expected gain is a strictly concave function. The seller’s choice between the fixed and the asking price strategies depends on several factors: the expected cost of haggling, price competition and the seller’s attitude towards risk.

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Published

2012-05-22

Issue

Vol. 4 No. 1 (2012)

Section

Articles

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