Pricing and market power under search frictions
Speaker: Joel Rabenhorst
Affiliation: UQ (School of Economics)
Abstract
We explore the problem of a monopolist selling a stock of a divisible good in a decentralized market to buyers with random downward sloping demands. We consider two pricing structures: dynamic linear pricing and dynamic two-part tariff pricing. For both, we show the seller optimally uses a marginalist approach by equalizing marginal revenue with an endogenous marginal cost. We fully characterize optimal selling behavior and show that (i) the optimal sales quantity increases and the optimal sales price decreases in the stock size, and (ii) the exercise of market power is, in general, greater when the seller holds more stock.
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The Statistics, modelling and operations research (SMOR) Seminar series seeks to celebrate and disseminate research and developments across the broad spectrum of quantitative sciences. The SMOR series provides a platform for communication of both theoretical and practical developments, as well as interdisciplinary topics relating to applied mathematics and statistics.