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Mechanism design with a liquidity constrained buyer: The 2 x 2 case

AuthorsChe, Yeon-Koo; Gale, Ian
Issue Date1999
CitationEuropean Economic Review 43(4-6): 947-957 (1999)
AbstractThis paper studies the implications of buyers' liquidity constraints for the optimal selling strategy. The possibility that a buyer faces a binding liquidity constraint affects the seller's strategy in a nontrivial way. Specifically, when a seller has one unit of a good to sell to a buyer with a quasilinear utility function, the 'no-haggling' result indicates that textbook monopoly pricing is optimal, absent liquidity constraints. Introducing a potentially binding liquidity constraint vitiates the no-haggling result, and can make it strictly beneficial for the seller to use nonlinear pricing, to commit to a declining price sequence, or to require the buyer to post a cash bond.
Identifiersdoi: 10.1016/S0014-2921(98)00107-X
issn: 0014-2921
Appears in Collections:(IAE) Artículos
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