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Dynamic Monopolies with Stochastic Demand

Author

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  • Walter Beckert

    (Department of Economics, Mathematics & Statistics, Birkbeck)

Abstract

This paper analyzes equilibria in sequential take-it-or-leave-it sales and sequential auctions when demand is stochastic. It is shown that equilibria in the former mechanism trade-off allocative efficiency and competing buyers' opportunities to acquire an item to be sold, permitting prices and expected revenue above those of one-shot offers and sequential auctions. Hence Coase-type conjectures are invalid, and optimal sequential auctions can be dominated. This provides one explanation why some goods are typically sold in take-it-or-leave-it deals, while others are sold in auctions. An asymptotic revenue equivalence result is shown to reconcile the two mechanisms as the time horizon of the dynamic game gets large.

Suggested Citation

  • Walter Beckert, 2004. "Dynamic Monopolies with Stochastic Demand," Birkbeck Working Papers in Economics and Finance 0404, Birkbeck, Department of Economics, Mathematics & Statistics.
  • Handle: RePEc:bbk:bbkefp:0404
    as

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    File URL: http://www.bbk.ac.uk/ems/research/wp/PDF/BWPEF0404.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Dynamic Monopoly; Stochastic Demand; Optimal Auctions; Coase Conjecture; Revenue Equivalence.;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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