Elena Istomina

Working Papers

(Previously circulated as Sorting Stock Through Sales: Inventory Turnover and Outlets)

Abstract: A seller offers durable goods of uncertain quality. Consumers can inspect the goods and distinguish quality levels, but the seller cannot. She introduces new inventory at high prices and gradually marks down unsold inventory at rates that keep the stock constant across price levels. Consumers arrive sequentially, choose a price point at which to inspect the goods, learn the quality, and decide whether to purchase. Their decisions induce endogenous sorting by quality across markdown levels. I characterize all sorting equilibria: steady states in which consumers optimally choose price points for inspection and sustain the quality distribution through purchases. I show that the seller faces a tradeoff between the volume of sales and the extent of discrimination by quality through sorting. Better sorting of quality levels necessarily reduces sales. Consumer and seller payoffs depend only on the relative quality difference between the highest and lowest prices, while the level of intermediate markdowns and sorting dynamics are payoff-irrelevant.

Abstract: This paper examines a monopolist who designs a menu of prices and quality levels for customers while incurring costs to understand the customer's requests. I show that the monopolist's problem simplifies to gathering information about the buyer's virtual type when communication precision costs are proportional to entropy reduction or when the buyer's type is binary. This friction introduces an additional market distortion, adding to the well-known problem of quality underprovision for low types. From a utilitarian perspective, the seller overinvests in communication precision to extract a larger surplus from the consumer.

Abstract: This paper models an uninformed seller negotiating with informed buyers when completing the transaction requires time and effort. The buyer exerts costly effort to expedite the deal, while the seller learns about the buyer's enthusiasm and adjusts her pricing over time. Anticipating this, the buyer strategically speeds up or slows down the process. I show that the seller's beliefs about the buyer and the final price exhibit tipping points: the seller becomes more pessimistic over time as higher buyer types exert more effort, leading to abrupt shifts in beliefs and market activity. Under some conditions, the market comes to a freeze right before a burst of activity.