Subjects were provided with information about the dispute and a settlement negotiation aspiration, and then asked to set their own reservation price
. Subjects receiving Version A (low aspiration) were provided the following information:
(3) This "minimum level of revenue" is sometimes also known as a landowner's "reservation price
" (see Barnard and Butcher (1989)).
In one auction, the researcher gets all subjects' reservation prices
from these ten bids.
Equation 1 can also be used to determine a prospective buyer's reservation price
: the price that would make the NPV equal to zero.
It is the utility enjoyed from the monetary sum that is the difference between the buyer's reservation price
and the price at which the buyer transacts.
Then changes in the range of customer reservation price
distribution are examined subsequently.
As shown in Head and Kumar (2005), when all firms have the same marginal cost [phi], they must all make the same profits; in particular, the same profits as any firm which charges the reservation price
. This allows us to solve
We show that the optimal wholesale price, BA's optimal reservation price
, and posted price all increase with the proportion of price takers under linear demand but decrease with it under constant elasticity demand.
In the auction tranche, the reservation price
(minimum acceptable bid) is based on the formula price.
(7.) The assumption that the firm optimally segments consumers as well as that it knows the reservation price
of each consumer is a simplifying assumption for the sake of exposition.