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Sequentially Optimal Mechanisms

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  • Vasiliki Skreta

    (University of Pittsburgh)

Abstract

We 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 Info

Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1521.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1521

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  1. Bester, Helmut & Strausz, Roland, 2007. "Contracting with imperfect commitment and noisy communication," Journal of Economic Theory, Elsevier, Elsevier, vol. 136(1), pages 236-259, September.
  2. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
  3. Laffont, Jean-Jacques & Tirole, Jean, 1990. "Adverse Selection and Renegotiation in Procurement," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(4), pages 597-625, October.
  4. Oliver D. Hart & Jean Tirole, 1987. "Contract Renegotiation and Coasian Dynamics," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 442, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Myerson, Roger B., 1994. "Communication, correlated equilibria and incentive compatibility," Handbook of Game Theory with Economic Applications, Elsevier, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 2, chapter 24, pages 827-847 Elsevier.
  6. Bester, Helmut & Strausz, Roland, 2001. "Contracting with Imperfect Commitment and the Revelation Principle: The Single Agent Case," Econometrica, Econometric Society, Econometric Society, vol. 69(4), pages 1077-98, July.
  7. Rey, Patrick & Salanie, Bernard, 1996. "On the Value of Commitment with Asymmetric Information," Econometrica, Econometric Society, Econometric Society, vol. 64(6), pages 1395-1414, November.
  8. John G. Riley & William Samuelson, 1979. "Optimal Auctions," UCLA Economics Working Papers, UCLA Department of Economics 152, UCLA Department of Economics.
  9. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, Econometric Society, vol. 50(6), pages 1431-51, November.
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  11. Robert J. Aumann & Sergiu Hart, 2002. "Long Cheap Talk," Discussion Paper Series, The Center for the Study of Rationality, Hebrew University, Jerusalem dp284, The Center for the Study of Rationality, Hebrew University, Jerusalem, revised Nov 2002.
  12. Jean-Jacques Laffont & Jean Tirole, 1985. "The Dynamics of Incentive Contracts," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 397, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. Gul, Faruk & Sonnenschein, Hugo & Wilson, Robert, 1986. "Foundations of dynamic monopoly and the coase conjecture," Journal of Economic Theory, Elsevier, Elsevier, vol. 39(1), pages 155-190, June.
  14. Myerson, Roger B., 1982. "Optimal coordination mechanisms in generalized principal-agent problems," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 67-81, June.
  15. R. Preston McAfee & Daniel Vincent, 1994. "Sequentially Optimal Auctions," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1104, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  16. Riley, John & Zeckhauser, Richard, 1983. "Optimal Selling Strategies: When to Haggle, When to Hold Firm," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(2), pages 267-89, May.
  17. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 15(1), pages 143-49, April.
  18. Drew Fudenberg & David K. Levine & Jean Tirole, 1985. "Infinite-Horizon Models of Bargaining with One-Sided Incomplete Information," Levine's Working Paper Archive 1098, David K. Levine.
  19. Skreta, Vasiliki, 2006. "Mechanism design for arbitrary type spaces," Economics Letters, Elsevier, Elsevier, vol. 91(2), pages 293-299, May.
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  21. Freixas, Xavier & Guesnerie, Roger & Tirole, Jean, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 52(2), pages 173-91, April.
  22. Maskin, Eric & Tirole, Jean, 1992. "The Principal-Agent Relationship with an Informed Principal, II: Common Values," Econometrica, Econometric Society, Econometric Society, vol. 60(1), pages 1-42, January.
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Cited by:
  1. Robert Evans & Sonje Reiche, 2013. "Mechanism Design and Non-Cooperative Renegotiation," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 1331, Faculty of Economics, University of Cambridge.
  2. Boone, Jan & Shapiro, Joel, 2006. "Selling to Consumers with Endogenous Types," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5862, C.E.P.R. Discussion Papers.
  3. Bisin, Alberto & Rampini, Adriano A., 2006. "Markets as beneficial constraints on the government," Journal of Public Economics, Elsevier, Elsevier, vol. 90(4-5), pages 601-629, May.
  4. Mylovanov, Tymofiy & Tröger, Thomas, 2006. "A Characterization of the Conditions for Optimal Auction with Resale," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 128, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  5. Jenny Simon, 2011. "Financial Markets as a Commitment Device for the Government," 2011 Meeting Papers 447, Society for Economic Dynamics.
  6. Vasiliki Skreta, 2010. "Optimal Auction Design under Non-Commitment," Levine's Working Paper Archive 506439000000000176, David K. Levine.
  7. Vasiliki Skreta, 2007. "Optimal Auctions with General Distributions," Levine's Bibliography 843644000000000227, UCLA Department of Economics.

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