On the choice of pricing policies: Ex ante commitment and prisoners' dilemma

I study the endogenous formation of pricing policies - posted-uniform versu s negotiated pricing - by using a version of a two-stage pricing game in a duopoly context. The model explains the prevalence of uniform pricing in so me markets/countries and identifies a typical Prisoners' Dilemma in these c ases. The sellers' commitment to a pre-announced price under uniform pricin g mitigates the fear of buyers that they might be exploited once they start price negotiations. While such buyers' anticipation induces sellers to ado pt uniform pricing in an attempt to capture more buyers, it results in inte nsified competition with lower seller payoffs. (C) 1999 Elsevier Science B. V. All rights reserved. JEL classification: C78; D43; L13.