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Managing Strategic Buyers

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    Abstract

    We consider the problem of a monopolist who must sell her inventory before some deadline, facing n buyers with independent private values. The monopolist posts prices but has no commitment power. The seller faces a basic trade-off between imperfect price discrimination and maintaining an effective reserve price. When there is only one unit and only a few buyers, the seller essentially posts unacceptable prices up to the very end, at which point prices collapse in a series of jumps to a "reserve price" that exceeds marginal cost. When there are many buyers, the seller abandons this reserve price in order to more effectively screen buyers. Her optimal policy then replicates a Dutch auction, with prices decreasing continuously over time.

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    File URL: http://cowles.econ.yale.edu/P/cd/d16b/d1684-r.pdf
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    Bibliographic Info

    Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1684R.

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    Length: 61 pages
    Date of creation: Nov 2008
    Date of revision: Sep 2010
    Publication status: Published in Journal of Political Economy (July 2011), 119(2): 379-429
    Handle: RePEc:cwl:cwldpp:1684r

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    Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
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    Web page: http://cowles.econ.yale.edu/
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    Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

    Related research

    Keywords: Revenue management; Intertemporal price discrimination; Coase conjecture; Perishable goods; Reserve price; Dutch auction;

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    1. repec:bla:restud:v:75:y:2008:i:1:p:317-332 is not listed on IDEAS
    2. Preston McAfee, 2003. "Capacity Choice Counters the Coase Conjecture," Theory workshop papers 505798000000000046, UCLA Department of Economics.
    3. Alex Gershkov & Benny Moldovanu, 2009. "Dynamic Revenue Maximization with Heterogeneous Objects: A Mechanism Design Approach," American Economic Journal: Microeconomics, American Economic Association, vol. 1(2), pages 168-98, August.
    4. Faruk Gul & Hugo Sonnenschein & Robert Wilson, 2010. "Foundations of Dynamic Monopoly and the Coase Conjecture," Levine's Working Paper Archive 232, David K. Levine.
    5. 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.
    6. Athey, Susan, 2001. "Single Crossing Properties and the Existence of Pure Strategy Equilibria in Games of Incomplete Information," Econometrica, Econometric Society, vol. 69(4), pages 861-89, July.
    7. von der Fehr, Nils-Henrik Morch & Kuhn, Kai-Uwe, 1995. "Coase versus Pacman: Who Eats Whom in the Durable-Goods Monopoly?," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 785-812, August.
    8. Vasiliki Skreta, 2010. "Optimal Auction Design under Non-Commitment," Levine's Working Paper Archive 506439000000000176, David K. Levine.
    9. Kahn, Charles M, 1986. "The Durable Goods Monopolist and Consistency with Increasing Costs," Econometrica, Econometric Society, vol. 54(2), pages 275-94, March.
    10. Chia-Hui Chen, 2012. "Name Your Own Price at Priceline.com: Strategic Bidding and Lockout Periods," Review of Economic Studies, Oxford University Press, vol. 79(4), pages 1341-1369.
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