Sequentially Optimal Mechanisms
AbstractWe characterize the revenue maximizing mechanism in a two-period model. A risk neutral seller owns one unit of a durable good and faces a risk neutral buyer whose valuation is private information. The seller has all the bargaining power; she designs an institution to sell the object at t0 but she cannot commit not to change the institution at t1 if trade does not occur at t0. The seller's objective is to pick the revenue maximizing mechanism. We show that if the probability density function of the buyer's valuation satisfies certain conditions, the optimal mechanism is to post a price in each period. Previous work has examined price dynamics when the seller behaves sequentially rationally. We provide a reason for the seller's choice to post a price even though she can use infinitely many other possible institutions: posted price selling is the optimal strategy in the sense that it maximizes the seller's revenues. Keywords: mechanism design, optimal auctions, sequential rationality.
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Bibliographic InfoPaper provided by UCLA Department of Economics in its series UCLA Economics Online Papers with number 342.
Date of creation: 28 Jan 2005
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- Vasiliki Skreta, 2010. "Sequentially Optimal Mechanisms," NajEcon Working Paper Reviews 391749000000000488, www.najecon.org.
- Vasiliki Skreta, 2000. "Sequentially Optimal Mechanisms," Econometric Society World Congress 2000 Contributed Papers 1521, Econometric Society.
- NEP-ALL-2006-02-19 (All new papers)
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