IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v93y2003i3p509-529.html
   My bibliography  Save this article

Optimal Pricing Mechanisms with Unknown Demand

Author

Listed:
  • Ilya Segal

Abstract

The standard profit-maximizing multiunit auction intersects the submitted demand curve with a preset reservation supply curve, which is determined using the distribution from which the buyers' valuations are drawn. However, when this distribution is unknown, a preset supply curve cannot maximize monopoly profits. The optimal pricing mechanism in this situation sets a price for each buyer on the basis of the demand distribution inferred statistically from other buyers' bids. The resulting profit converges to the optimal monopoly profit with known demand as the number of buyers goes to infinity, and convergence can be substantially faster than with sequential price experimentation.

Suggested Citation

  • Ilya Segal, 2003. "Optimal Pricing Mechanisms with Unknown Demand," American Economic Review, American Economic Association, vol. 93(3), pages 509-529, June.
  • Handle: RePEc:aea:aecrev:v:93:y:2003:i:3:p:509-529
    Note: DOI: 10.1257/000282803322156963
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/000282803322156963
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jeffrey M. Perloff & Steven C. Salop, 1985. "Equilibrium with Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 52(1), pages 107-120.
    2. Philippe Aghion & Patrick Bolton & Christopher Harris & Bruno Jullien, 1991. "Optimal Learning by Experimentation," Review of Economic Studies, Oxford University Press, vol. 58(4), pages 621-654.
    3. Motty Perry & Philip J. Reny, 2002. "An Efficient Auction," Econometrica, Econometric Society, vol. 70(3), pages 1199-1212, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:93:y:2003:i:3:p:509-529. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael P. Albert). General contact details of provider: http://edirc.repec.org/data/aeaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.