Optimal Contracting Of New Experience Goods
AbstractWe 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 9880.
Date of creation: 04 Aug 2008
Date of revision:
Dynamic mechanism design; new experience goods; bandit problems;
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; Mechanism Design
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-08-14 (All new papers)
- NEP-CTA-2008-08-14 (Contract Theory & Applications)
- NEP-MIC-2008-08-14 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Susan Athey & Ilya Segal, 2007. "An Efficient Dynamic Mechanism," Levine's Bibliography 122247000000001134, UCLA Department of Economics.
- Pascal Courty & Li Hao, 1997.
Economics Working Papers
224, Department of Economics and Business, Universitat Pompeu Fabra.
- Alessandro Pavan, 2007.
"Long-Term Contracting in a Changing World,"
1456, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- PÃ©ter Eső & Bal�zs Szentes, 2007. "Optimal Information Disclosure in Auctions and the Handicap Auction," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 705-731.
- Marco Battaglini, 2003.
"Long-Term Contracting with Markovian Consumers,"
Theory workshop papers
505798000000000048, UCLA Department of Economics.
- 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.
- Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2005. "Internet Advertising and the Generalized Second Price Auction: Selling Billions of Dollars Worth of Keywords," NBER Working Papers 11765, National Bureau of Economic Research, Inc.
- Börgers, Tilman & Cox, Ingemar & Pesendorfer, Martin & Petricek, Vaclav, 2008. "Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence," MPRA Paper 29125, University Library of Munich, Germany.
- Alessandro Pavan & Ilya Segal & Juuso Toikka, 2009.
"Dynamic Mechanism Design: Incentive Compatibility, Profit Maximization and Information Disclosure,"
1501, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Alessandro Pavan & Ilya Segal & Juuso Toikka, 2008. "Dynamic Mechanism Design: Incentive Compatibility, Profit Maximization and Information Disclosure," Carlo Alberto Notebooks 84, Collegio Carlo Alberto.
- Dirk Bergemann & Juuso Välimäki, 2007.
"Dynamic Marginal Contribution Mechanism,"
843644000000000300, UCLA Department of Economics.
- Dirk Bergemann & Juuso Valimaki, 2007. "Dynamic Marginal Contribution Mechanism," Cowles Foundation Discussion Papers 1616, Cowles Foundation for Research in Economics, Yale University.
- Juuso Valimaki & Dirk Bergemann, 2008. "Dynamic Marginal Contribution Mechanism," 2008 Meeting Papers 317, Society for Economic Dynamics.
- Dirk Bergemann & Juuso Valimaki, 2006. "Bandit Problems," Cowles Foundation Discussion Papers 1551, Cowles Foundation for Research in Economics, Yale University.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.