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Optimal Mechanism for Selling Substitutes


  • Gregory Pavlov

    () (Boston University, Department of Economics)


We study a problem of a multiproduct monopolist selling substitutable goods to a buyer with unknown valuations. Under the standard distributional assumptions we find that in the optimal menu every nontrivial contract delivers some good with certainty. Using this result we apply control-theoretic tools to the case of two goods and solve a number of examples. The optimal menus generally have a simple structure and sometimes are substantially more profitable than the deterministic menus. We also extend the approach to the case when the buyer desires more than a single unit of the good.

Suggested Citation

  • Gregory Pavlov, 2006. "Optimal Mechanism for Selling Substitutes," Boston University - Department of Economics - Working Papers Series WP2006-014, Boston University - Department of Economics.
  • Handle: RePEc:bos:wpaper:wp2006-014

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    References listed on IDEAS

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    Cited by:

    1. Pavlov Gregory, 2011. "Optimal Mechanism for Selling Two Goods," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 11(1), pages 1-35, February.
    2. Chawla, Shuchi & Malec, David & Sivan, Balasubramanian, 2015. "The power of randomness in Bayesian optimal mechanism design," Games and Economic Behavior, Elsevier, vol. 91(C), pages 297-317.

    More about this item


    Multidimensional screening; Price discrimination; Optimal selling strategies;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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