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Optimal Mechanism for Selling Substitutes

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  • Gregory Pavlov

    ()
    (Boston University, Department of Economics)

Abstract

We 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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File URL: http://people.bu.edu/gpavlov/substitutes.pdf
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Bibliographic Info

Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2006-014.

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Length: 39 pages
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:bos:wpaper:wp2006-014

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Related research

Keywords: Multidimensional screening; Price discrimination; Optimal selling strategies;

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Cited by:
  1. 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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