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Regret in durable-good monopoly

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  • Kostadinov, Rumen

    (Department of Economics, McMaster University)

Abstract

I study a dynamic model of durable-good monopoly where the seller minimises lifetime regret against the worst-case type of buyer. The optimal mechanism is time-consistent: at no point can the seller benefit from replacing it with another mechanism. Despite this, the optimal mechanism cannot be supported in an equilibrium without commitment. This is because the seller's regret is endogenously determined by the best counterfactual payoffs he can obtain against every type, and these payoffs vary with his commitment power. When the seller lacks commitment the good may not be sold to all types. However, in the limit as offers become frequent the good is sold immediately at a price equal to the lowest buyer value.

Suggested Citation

  • Kostadinov, Rumen, 0. "Regret in durable-good monopoly," Theoretical Economics, Econometric Society.
    • Handle: RePEc:the:publsh:6066
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    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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