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Optimal Contracting Of New Experience Goods

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Author Info
Deb, Rahul

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Abstract

We model new experience goods in the context of dynamic mechanism design. These are goods for which an agent is unsure of her valuation but can learn it through consumption experience. We consider a dynamic environment with a single buyer and seller in which contracting occurs over T periods, where each time the agent consumes the object, she receives a signal which allows her to revise her valuation. In this setting, experimentation with the product is strategic both for the buyer and seller. We derive the efficient and seller optimal contracts and compare them. We present a simple two period example which highlights some of the key features of the model. Finally, the methodology developed in the paper can be used to design efficient and optimal contracts in a multi-buyer setting with learning, where each buyer has single unit demand and there is a single object for sale in each period.

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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9880.

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Date of creation: 04 Aug 2008
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Handle: RePEc:pra:mprapa:9880

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Related research
Keywords: Dynamic mechanism design; new experience goods; bandit problems;

Other versions of this item:

Find related papers by JEL classification:
D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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  1. Peter Es & Balazs Szentes, 2007. "Optimal Information Disclosure in Auctions and the Handicap Auction," Review of Economic Studies, Blackwell Publishing, vol. 74(3), pages 705-731, 07. [Downloadable!] (restricted)
  2. Dirk Bergemann & Juuso Valimaki, 2007. "Dynamic Marginal Contribution Mechanism," Cowles Foundation Discussion Papers 1616, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
  3. Pascal Courty & Li Hao, 1997. "Sequential Screening," Economics Working Papers 224, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
  4. Alessandro Pavan, 2007. "Long-Term Contracting in a Changing World," Discussion Papers 1456, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  5. Marco Battaglini, 2005. "Long-Term Contracting with Markovian Consumers," American Economic Review, American Economic Association, vol. 95(3), pages 637-658, June. [Downloadable!]
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  6. Susan Athey & Ilya Segal, 2007. "An Efficient Dynamic Mechanism," Levine's Bibliography 122247000000001134, UCLA Department of Economics. [Downloadable!]
  7. Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2007. "Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords," American Economic Review, American Economic Association, vol. 97(1), pages 242-259, March. [Downloadable!]
    Other versions:
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