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Dynamic Monopolies with Stochastic Demand

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Author Info
Walter Beckert (Department of Economics, Mathematics & Statistics, Birkbeck)

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Abstract

This paper analyzes equilibria in sequential take-it-or-leave-it sales and sequential auctions when demand is stochastic. It is shown that equilibria in the former mechanism trade-off allocative efficiency and competing buyers' opportunities to acquire an item to be sold, permitting prices and expected revenue above those of one-shot offers and sequential auctions. Hence Coase-type conjectures are invalid, and optimal sequential auctions can be dominated. This provides one explanation why some goods are typically sold in take-it-or-leave-it deals, while others are sold in auctions. An asymptotic revenue equivalence result is shown to reconcile the two mechanisms as the time horizon of the dynamic game gets large.

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File URL: http://www.ems.bbk.ac.uk/research/wp/PDF/BWPEF0404.pdf
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File Function: First version, 2004
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Publisher Info
Paper provided by Birkbeck, Department of Economics, Mathematics & Statistics in its series Birkbeck Working Papers in Economics and Finance with number 0404.

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Date of creation: May 2004
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Handle: RePEc:bbk:bbkefp:0404

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Related research
Keywords: Dynamic Monopoly; Stochastic Demand; Optimal Auctions; Coase Conjecture; Revenue Equivalence.;

Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
F31 - International Economics - - International Finance - - - Foreign Exchange

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  1. McAfee, R. Preston & Vincent, Daniel, 1997. "Sequentially Optimal Auctions," Games and Economic Behavior, Elsevier, vol. 18(2), pages 246-276, February. [Downloadable!] (restricted)
    Other versions:
  2. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law & Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  3. Muthoo, Abhinay, 1994. "A Note on Repeated-Offers Bargaining with One-Sided Incomplete Information," Economic Theory, Springer, vol. 4(2), pages 295-301, March.
  4. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-92, June. [Downloadable!] (restricted)
    Other versions:
  5. Harris, Milton & Raviv, Artur, 1981. "A Theory of Monopoly Pricing Schemes with Demand Uncertainty," American Economic Review, American Economic Association, vol. 71(3), pages 347-65, June.
  6. Yongmin Chen & Ruqu Wang, 1997. "Learning Buyers' Valuation Distribution in Posted-Price Selling," Working Papers 953, Queen's University, Department of Economics. [Downloadable!]
  7. Bernhardt, Dan & Scoones, David, 1994. "A Note on Sequential Auctions," American Economic Review, American Economic Association, vol. 84(3), pages 653-57, June. [Downloadable!] (restricted)
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  8. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January. [Downloadable!] (restricted)
  9. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation, Yale University. [Downloadable!]
  10. Bagnoli, Mark & Salant, Stephen W & Swierzbinski, Joseph E, 1995. "Intertemporal Self-Selection with Multiple Buyers," Economic Theory, Springer, vol. 5(3), pages 513-26, May.
  11. Bagnoli, Mark & Salant, Stephen W & Swierzbinski, Joseph E, 1989. "Durable-Goods Monopoly with Discrete Demand," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1459-78, December. [Downloadable!] (restricted)
  12. Gul, Faruk & Sonnenschein, Hugo & Wilson, Robert, 1986. "Foundations of dynamic monopoly and the coase conjecture," Journal of Economic Theory, Elsevier, vol. 39(1), pages 155-190, June. [Downloadable!] (restricted)
  13. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring. [Downloadable!] (restricted)
  14. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer. [Downloadable!] (restricted)
  15. Harris, Milton & Raviv, Artur, 1981. "Allocation Mechanisms and the Design of Auctions," Econometrica, Econometric Society, vol. 49(6), pages 1477-99, November. [Downloadable!] (restricted)
  16. Fudenberg, Drew & Tirole, Jean, 1983. "Sequential Bargaining with Incomplete Information," Review of Economic Studies, Blackwell Publishing, vol. 50(2), pages 221-47, April. [Downloadable!] (restricted)
  17. Riley, John & Zeckhauser, Richard, 1983. "Optimal Selling Strategies: When to Haggle, When to Hold Firm," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 267-89, May. [Downloadable!] (restricted)
  18. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April. [Downloadable!] (restricted)
  19. Majerus, D.W., 1992. "Durable Goods Monopoly with a Finite But Uncertain Number of Consumers," Papers 92-3, U.S. Department of Justice - Antitrust Division.
  20. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September. [Downloadable!] (restricted)
    Other versions:
  21. Thepot, Jacques, 1998. "A direct proof of the Coase conjecture," Journal of Mathematical Economics, Elsevier, vol. 29(1), pages 57-66, January. [Downloadable!] (restricted)
  22. Bulow, Jeremy & Klemperer, Paul, 1994. "Rational Frenzies and Crashes," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 1-23, February. [Downloadable!] (restricted)
    Other versions:
  23. Wang, Ruqu, 1993. "Auctions versus Posted-Price Selling," American Economic Review, American Economic Association, vol. 83(4), pages 838-51, September. [Downloadable!] (restricted)
    Other versions:
  24. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-94, March. [Downloadable!] (restricted)
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