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On the Optimality of Price-posting in Rental Markets

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  • Juan Beccuti

Abstract

This paper considers a multi-period setting where a monopolist, with short-term commitment, rents one unit of a durable good to a single consumer in every period. The consumer's valuation constitutes his private information and remains constant over time. By using a mechanism design approach, the paper shows that the optimal renting strategy is to offer a simple price in every period. Although sophisticated mechanisms can make separation feasible when price-posting cannot achieve it, this happens precisely when separation is dominated by pooling. Moreover, the monopolist's choice of whether to discriminate or not depends on a simple and apparently myopic rule, reminiscent of its static equivalent.

Suggested Citation

  • Juan Beccuti, 2020. "On the Optimality of Price-posting in Rental Markets," Diskussionsschriften dp2007, Universitaet Bern, Departement Volkswirtschaft.
    • Handle: RePEc:ube:dpvwib:dp2007
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    File URL: https://repec.vwiit.ch/dp/dp2007.pdf
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    References listed on IDEAS

    as
    1. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, December.
    2. Laura Doval & Vasiliki Skreta, 2022. "Mechanism Design With Limited Commitment," Econometrica, Econometric Society, vol. 90(4), pages 1463-1500, July.
    3. Doval, Laura & Skreta, Vasiliki, 0. "Optimal mechanism for the sale of a durable good," Theoretical Economics, Econometric Society.
    4. Beccuti, Juan & Möller, Marc, 2021. "Screening by mode of trade," Games and Economic Behavior, Elsevier, vol. 129(C), pages 400-420.
    5. Bester, Helmut & Strausz, Roland, 2001. "Contracting with Imperfect Commitment and the Revelation Principle: The Single Agent Case," Econometrica, Econometric Society, vol. 69(4), pages 1077-1098, July.
    6. Beccuti, Juan & Möller, Marc, 2018. "Dynamic adverse selection with a patient seller," Journal of Economic Theory, Elsevier, vol. 173(C), pages 95-117.
    7. Gerardi, Dino, 2018. "Dynamic Contracting with Limited Commitment and the Ratchet Effect," CEPR Discussion Papers 12699, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Durable good; renting; dynamic adverse selection; mechanism design; short-term commitment; price-posting;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly

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