The Analytics of Search with Posted Prices

This paper investigates the characteristics of the optimal posted price in the standard sequential search paradigm. Much of the intuition gleaned from the extensive sequential search literature in which the seller adopts a reservation price does not carry over to the posted price setting. For example, an increase in buyer valuations can lead to a reduction in the optimal posted price. We do, however, provide sufficient conditions on the hazard rate function h which ensure that an increase in demand induces an increase in the optimal posted price. As exhibited herein, the analysis of the posted price model depends critically upon analytical properties of h. Amongst the issues treated are the elasticity of demand, finite horizon, sale of multiple units, and competitive equilibrium. Keywords and Phrases: Sequential search, Posted price, Hazard rate