Optimal Selling Mechanisms with Buyer Price Search

We study optimal dynamic selling mechanisms in a two-stage model where the buyer can search for a better price at the second stage. When this outside price is public, the optimal selling mechanism takes the form of a fixed first-stage price with price matching in the second stage. In contrast, when the outside price is the buyer’s private information, the optimal mechanism is a menu of two contracts: a first-stage sale at a higher price with immediate delivery, or a first-stage sale at a lower price with second-stage delivery. Thus the optimal form of search deterrence depends on the observability of the buyer’s outside option