The search model would no longer apply, and ask prices would be irrelevant.
But it also implicitly tests whether computers with high ask prices ultimately receive higher transaction prices, under the assumption that final transaction prices are correlated with higher outstanding offers.
In fact, if high ask prices deter low-valuation buyers, we would expect that the distribution of received offers (not just the highest) would be higher for computers with high ask prices.
In this article, we consider the role served by the ask price posted by sellers in an online exchange for used computers.
The ask price is not binding and is typically high relative to any objective assessment of the value of the computer.
The set of information available to the buyer therefore consists of the listed characteristics of the computer, the date on which the computer was listed, the ask price, and the date and level of any previous offers submitted.
Competing Explanations for an Empirically Significant Ask Price
The next row shows the average log-difference between the ask price and the computer's value.
To measure the effect of the ask price, we also include the log-difference between the ask price and the independent assessment of the computer's value as a right-hand-side variable: (28)
The coefficient on the ask price is close to zero and is not statistically significant for the high-strength subsample.
The most straightforward approach to estimating this relationship is to include the ask price in a standard hedonic regression.
In the base specification, we measure the independent effect of the ask price on offers by including the difference between the ask price and the computer's value (the "spread") as an explanatory variable.