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Many goods are marketed after first stating a list price, with the expectation that the eventual sales price will differ. In this paper we first present a simple model of search behavior that includes the seller setting a list price. Holding constant the mean of the buyers' distribution of potential offers for a good, we assume that the greater the list price, the slower the arrival rate of offers but the greater is the maximal offer. This tradeoff determines the optimal list price, which is set simultaneously with the seller's reservation price. Comparative statics are derived through a set numerical sensitivity tests, where we show that the greater the variance of the distribution of buyers' potential offers, the greater is the ratio of the list price to expected sales price. Thus, sellers of atypical goods will tend to set a relatively high list price compared with standard goods.We test this hypothesis using data from the Columbus, Ohio housing market and find substantial support. We also find empirical support for another hypothesis of the model: atypical dwellings take longer to sell.3

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for helpful comments. Tommy Brown, Sam Hughes, Ammon Lam, Tammy Lee, and Lei Ma provided excellent research assistance. An anonymous information-technology firm provided the data. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w25668.ack NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

and NBER. We thank seminar participants at Brigham Young University for helpful comments. The analysis and conclusions contained in this paper are those of the authors and do not necessarily reflect the views of the Board of Governors of the Federal Reserve System, its members, its staff, or the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.