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 incentives for potential buyers to incur search costs. Having attracted such a potential buyer, the seller must also determine how low to set the floor price, below which it is preferable to wait for another customer. This decision is affected by expectations about the characteristics of future buyers, which are, in turn, affected by the asking price. All of this is embedded in models of monopoly and of duopolistic competition.