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Abstract

We examine a two-stage selling mechanism design problem, where the buyer makes her report and the seller endogenously decides his effort (hidden investment) to generate a possibly better outside offer. The optimal mechanism shows that the seller’s effort depends on the reported value of the buyer; a higher value lowers the seller’s incentive to invest in the outside offer. After the price of the outside offer is realized, if the buyer’s virtual value is less than the price, the seller takes the outside offer, and a termination fee equal to the virtual value is paid to the buyer.

Publication Type:	Article
Additional Information:	This is the peer reviewed version of the following article: Che, X., Li, T., Lu, J. & Zheng, X. (2025). Optimal Selling Mechanisms with Endogenous Seller Outside Offers. International Economic Review, which is to be published in final form at https://onlinelibrary.wiley.com/journal/14682354. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited.
Publisher Keywords:	Direct mechanisms; truthful reporting; seller outside offers; termination fees
Subjects:	H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HF Commerce H Social Sciences > HG Finance
Departments:	School of Policy & Global Affairs School of Policy & Global Affairs > Department of Economics
SWORD Depositor:	Symplectic Administrator

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