Journal article
Intertemporal Pricing in Markets with Differential Information
Economic theory, Vol.8(2), pp.211-227
08/01/1996
DOI: 10.1007/BF01211814
Abstract
This paper provides a theory of intertemporal pricing in a small market with differential information about the realizations of a stochastic process which determines demand. We study the sequential equilibria in stationary strategies of the stochastic game between a seller and buyer. The seller has zero cost of producing one unit of a non-durable good in all market periods. The buyer's value for the good is a random variable governed by a simple Markov process. At the beginning of each period the unit's value is determined by nature and is privately revealed to the buyer. The seller posts a single price offer each period, which the buyer either accepts or rejects. Only two types of price paths emerge in equilibrium: either prices are constant, or they have persistent cycles between a low and a high value. In both cases, however, prices are "sticky" in the sense that changes in price are less frequent than changes in the economy's fundamentals.
Details
- Title: Subtitle
- Intertemporal Pricing in Markets with Differential Information
- Creators
- Aldo Rustichini - Economics (Twin Cities)Anne P. Villamil - University of Illinois Urbana-Champaign
- Resource Type
- Journal article
- Publication Details
- Economic theory, Vol.8(2), pp.211-227
- Publisher
- Springer-Verlag
- DOI
- 10.1007/BF01211814
- ISSN
- 0938-2259
- eISSN
- 1432-0479
- Language
- English
- Date published
- 08/01/1996
- Academic Unit
- Economics
- Record Identifier
- 9984380559002771
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