Possibly-final offers

Nolan H. Miller, Nikita E. Piankov, Richard J. Zeckhauser

Research output: Contribution to journalArticlepeer-review

Abstract

A price-setting seller faces a buyer with unknown reservation value. We show that if the buyer is sufficiently risk averse, the seller can benefit from employing a Possibly-Final Offer (PFO) strategy. In a PFO, if the buyer rejects the seller's initial offer the seller sometimes terminates the interaction. If the seller does not terminate, he follows up with a subsequent, more attractive offer. As the buyer's risk aversion increases, the seller's expected profit under the optimal PFO approaches the full-information profit. These results extend to contexts with endogenous commitment, multiple types of buyers, multidimensional objects, and nonseparable utility functions.

Original languageEnglish (US)
Pages (from-to)789-819
Number of pages31
JournalJournal of Economics and Management Strategy
Volume15
Issue number3
DOIs
StatePublished - Sep 1 2006
Externally publishedYes

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Strategy and Management
  • Management of Technology and Innovation

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