ASKING PRICES AS COMMITMENT DEVICES

This paper explores the implications of the hypothesis that an asking price is a ceiling to which a seller commits in order to provide incen tives for potential buyers to incur search costs. Having attracted suc h a potential buyer, the seller must also determine how low to set the floor price, below which it is preferable to wait for another custome r. This decision is affected by expectations about the characteristics of future buyers, which are, in turn, affected by the asking price. A ll of this is embedded in models of monopoly and of duopolistic compet ition.