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Dynamic Monopolies with Stochastic Demand

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  • Walter Beckert

    (Department of Economics, Mathematics & Statistics, Birkbeck)

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.bbk.ac.uk/ems/research/wp/PDF/BWPEF0404.pdf
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Bibliographic 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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Keywords: Dynamic Monopoly; Stochastic Demand; Optimal Auctions; Coase Conjecture; Revenue Equivalence.;

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References

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  1. Jeremy Bulow & Paul Klemperer, 1991. "Rational Frenzies and Crashes," NBER Technical Working Papers 0112, National Bureau of Economic Research, Inc.
  2. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, 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. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  5. Harris, Milton & Raviv, Artur, 1981. "Allocation Mechanisms and the Design of Auctions," Econometrica, Econometric Society, vol. 49(6), pages 1477-99, November.
  6. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-92, June.
  7. Thepot, Jacques, 1998. "A direct proof of the Coase conjecture," Journal of Mathematical Economics, Elsevier, vol. 29(1), pages 57-66, January.
  8. Wang, Ruqu, 1993. "Auctions versus Posted-Price Selling," American Economic Review, American Economic Association, vol. 83(4), pages 838-51, September.
  9. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
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  11. 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.
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  14. 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.
  15. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
  16. Fudenberg, Drew & Tirole, Jean, 1983. "Sequential Bargaining with Incomplete Information," Review of Economic Studies, Wiley Blackwell, vol. 50(2), pages 221-47, April.
  17. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  18. Bernhardt, Dan & Scoones, David, 1993. "A Note on Sequential Auctions," Working Papers 829, California Institute of Technology, Division of the Humanities and Social Sciences.
  19. Laffont, J.-J. & Loisel, P. & Robert, J., 1998. "Intra-Day Dynamics in Sequential Auctions: Theory and Estimation," Papers 98.488, Toulouse - GREMAQ.
  20. 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.
  21. 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.
  22. 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.
  23. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-94, March.
  24. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation for Research in Economics, Yale University.
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