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Our specification assumes that if the ask price affects offers, its marginal effects are identical in dollar terms across all computers.
Optimal Ask Price and Bid Strategies for Residential Sales.
Our approach is to see whether the relationship between ask prices, offers, and time to sale on the exchange is similar to that in other markets characterized by costly search.
Using these data, we find that high ask prices extend time to sale and that the relationship is stronger in thinner market segments.
Our conclusion is that despite the prevalence of information in the market, ask prices play a role consistent with the predictions of search models.
In this section we discuss some models that explain a functional role for ask prices.
These models can motivate variation in ask prices for identical goods in two ways.
First, higher ask prices will be associated with higher transaction prices.
Most of the existing literature testing the predictions regarding search behavior and ask prices uses data from housing markets.
Some of the work also tests the hypothesis that the variance of buyers' willingness to pay will affect ask prices, offers, and time to sale.
This allows us to test whether higher ask prices actually deter buyers from making offers.
Our approach is therefore to test the predictions of the search model in this setting to assess empirically the role of ask prices and the overall relevance of search models in this online setting.