Abstract
We solve a multiple indivisible unit search problem when there is a low fixed cost of selling, escapable when either the whole position is liquidated, or when the seller decides to quit search. There is no organized competitive market to sell the inventory; instead, buyers arrive with capped demands or limit orders, aiming to buy single or multiple units at random prices, while the seller can partially act upon them. We characterize the optimal strategy specifying the search strategy — whether or not to search — and the selling strategy — how and how much to sell. By doing so, we combine an ex-ante identical Pandora’s box problem with an intensive margin decision related to how much to act upon each offer. We show that the optimal strategy translates into optimal bundle pricing when the seller faces homogeneous demands. Otherwise, the optimal strategy combines selling each additional unit at a premium for large inventory (search at the margin) and “sales” in the form of bundling and volume discounts, or even purchase premiums, when inventory is low. Our theory explicitly accounts for the effect of escapable fixed costs on optimal liquidation strategies.
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About the presenter
Tono Carrasco obtained his PhD in Economics from the University of Wisconsin-Madison, United States in 2016.
Since 2016 he has been an assistant professor at the Faculty of Engineering and Sciences of the Adolfo Ibáñez University, where he teaches courses in Economics and Industrial Organization.
His research interests include search & matching, dynamic programming, game theory, and financial markets.
In 2017 his research project "Oligopoly and Price Dispersion" was selected to be financed with public funds by FONDECYT.
About Economic Theory Seminar Series
A seminar series designed specifically for economic theory researchers to network and collaborate.
