Posted prices versus bargaining in markets with asymmetric information

A search model is employed to analyze the choice between posting a price and bargaining for the seller of an asset who is imperfectly informed about both buyer valuations and buyer bargaining abilities. A mean preserving increase in risk of buyer valuations is relevant (and beneficial) to the seller; however, only the mean <(gamma)over bar> (and not the distribution) of buyer bargaining abilities is relevant. If <(gamma)over bar> is sufficiently. high, the seller utilizes a posted price. Interestingly! social welfare decreases in <(gamma)over bar>; while an increase in <(gamma)over bar> reduces expected search costs, it also results in misallocation of the good because the seller is less discriminating. (JEL D42, D83).