Intertemporal Pricing in Markets with Differential Information.
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.
Year of publication: |
1996
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Authors: | Rustichini, Aldo ; Villamil, Anne P |
Published in: |
Economic Theory. - Springer. - Vol. 8.1996, 2, p. 211-27
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Publisher: |
Springer |
Saved in:
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