Optimal Mechanism for Selling Substitutes
AbstractWe study a problem of a multiproduct monopolist selling substitutable goods to a buyer with unknown valuations. Under the standard distributional assumptions we find that in the optimal menu every nontrivial contract delivers some good with certainty. Using this result we apply control-theoretic tools to the case of two goods and solve a number of examples. The optimal menus generally have a simple structure and sometimes are substantially more profitable than the deterministic menus. We also extend the approach to the case when the buyer desires more than a single unit of the good.
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Bibliographic InfoPaper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2006-014.
Length: 39 pages
Date of creation: Feb 2006
Date of revision:
Multidimensional screening; Price discrimination; Optimal selling strategies;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-10-28 (All new papers)
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- Gregory Pavlov, 2010.
"Optimal Mechanism for Selling Two Goods,"
UWO Department of Economics Working Papers
20103, University of Western Ontario, Department of Economics.
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