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Monopoly Pricing, Optimal Randomization, and Resale

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  • Simon Loertscher
  • Ellen V. Muir

Abstract

We provide a parsimonious and unified explanation for randomized selling mechanisms widely used in practice yet commonly perceived as puzzling. Optimality of randomization in the form of conflation and rationing implies that revenue under market-clearing pricing is nonconcave. Randomization is implementable via opaque pricing and underpricing. Relative to market-clearing pricing, randomization increases the equilibrium quantity and quality of goods sold and, consequently, may increase consumer surplus. For fixed quantities, resale increases consumer surplus. However, resale can decrease the equilibrium quantity and quality of goods sold. Thus, resale prohibition, which always benefits the seller, may also increase consumer surplus.

Suggested Citation

  • Simon Loertscher & Ellen V. Muir, 2022. "Monopoly Pricing, Optimal Randomization, and Resale," Journal of Political Economy, University of Chicago Press, vol. 130(3), pages 566-635.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/717894
    DOI: 10.1086/717894
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    Cited by:

    1. Kai Hao Yang & Alexander K. Zentefis, 2023. "Extreme Points of First-Order Stochastic Dominance Intervals: Theory and Applications," Cowles Foundation Discussion Papers 2355, Cowles Foundation for Research in Economics, Yale University.
    2. Dirk Bergemann & Tibor Heumann & Stephen Morris, 2022. "Screening with Persuasion," Papers 2212.03360, arXiv.org.
    3. Alexei Parahonyak & Nick Vikander, 2024. "Strategic Use of Product Delays to Shape Word-of-Mouth Communication," Economics Series Working Papers 1032, University of Oxford, Department of Economics.
    4. Kai Hao Yang & Alexander K. Zentefis, 2023. "Monotone Function Intervals: Theory and Applications," Papers 2302.03135, arXiv.org, revised Apr 2024.
    5. Dirk Bergemann & Tibor Heumann & Stephen Morris, 2023. "Bidder-Optimal Information Structures in Auctions," Cowles Foundation Discussion Papers 2375, Cowles Foundation for Research in Economics, Yale University.
    6. Parakhonyak, Alexei & Vikander, Nick, 2023. "Information design through scarcity and social learning," Journal of Economic Theory, Elsevier, vol. 207(C).

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