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On optimal mechanisms in the two-item single-buyer unit-demand setting

Author

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  • Thirumulanathan, D.
  • Sundaresan, Rajesh
  • Narahari, Y.

Abstract

We consider the problem of designing a revenue-optimal mechanism in the two-item, single-buyer, unit-demand setting when the buyer’s valuations, (z1,z2), are uniformly distributed in an arbitrary rectangle [c,c+b1]×[c,c+b2] in the positive quadrant. We provide a complete and explicit solution for arbitrary nonnegative values of (c,b1,b2). We identify five simple structures, each with at most five (possibly stochastic) menu items, and prove that the optimal mechanism has one of the five structures. We also characterize the optimal mechanism as a function of b1,b2, and c. When c is low, the optimal mechanism is a posted price mechanism with an exclusion region; when c is high, it is a posted price mechanism without an exclusion region. Our results are the first to show the existence of optimal mechanisms with no exclusion region, to the best of our knowledge.

Suggested Citation

  • Thirumulanathan, D. & Sundaresan, Rajesh & Narahari, Y., 2019. "On optimal mechanisms in the two-item single-buyer unit-demand setting," Journal of Mathematical Economics, Elsevier, vol. 82(C), pages 31-60.
    • Handle: RePEc:eee:mateco:v:82:y:2019:i:c:p:31-60
    DOI: 10.1016/j.jmateco.2019.01.005
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    Cited by:

    1. Kazumura, Tomoya & Mishra, Debasis & Serizawa, Shigehiro, 2020. "Strategy-proof multi-object mechanism design: Ex-post revenue maximization with non-quasilinear preferences," Journal of Economic Theory, Elsevier, vol. 188(C).

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