Fire Sales And Search

John Mamer, UCLA Anderson School of Management, Los Angeles, CA

Stevenson Hall 1300
11:00 AM - 11:50 AM

We study a model asset sales via search with semi-rational buyers. A seller has a finite (or infinite) number of items to sell; buyers arrive according to a Poisson process. An arriving buyer presents an offer to the seller. Buyers' values for the asset are modeled as independent draws from a probability distribution. The seller must decide whether or not to accept the offer or to reject it and wait for a better one. The seller pays a cost per unit time to continue searching, and has a discount rate. Each potential buyer knows the price of the last sale, and offers the minimum of his reservation value and the price of the last sale. As a result, the seller faces a falling offer distribution, each sales price setting the maximum offer for subsequent sales. Our model has application to distributor/manufacturer negotiations and pricing of technology products.