SELLING A LEMON UNDER DEMAND UNCERTAINTY

Kyungmin Kim, Sun Hyung Kim

Research output: Contribution to journalArticle

Abstract

We consider a seller who has private information about the quality of her good but is uncertain about buyer arrivals. Assuming that the high-quality seller insists on a price, we show that the low-quality seller's surplus and pricing strategy crucially depend on buyers' knowledge about the demand state. If they are also uncertain about demand, then demand uncertainty increases the low-quality seller's expected payoff, and her optimal strategy is to lower the price after some time. If buyers know the demand state, then demand uncertainty does not affect the low-quality seller's payoff, but she must employ a sophisticated pricing strategy.

Original languageEnglish (US)
JournalInternational Economic Review
DOIs
StateAccepted/In press - Jan 1 2018

    Fingerprint

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this