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Selling to the Mean

Author

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  • Nenad Kos
  • Matthias Messner

Abstract

We study optimal selling strategies of a seller who is poorly informed about the buyer’s value for the object. When the maxmin seller only knows that the mean of the distribution of the buyer’s valuations belongs to some interval then nature can keep him to payoff zero no matter how much information the seller has about the mean. However, when the seller has information about the mean and the variance, or the mean and the upper bound of the support, the seller optimally commits to a randomization over prices and obtains a strictly positive payoff. In such a case additional information about the mean and/or the variance affects his payoff.

Suggested Citation

  • Nenad Kos & Matthias Messner, 2015. "Selling to the Mean," CESifo Working Paper Series 5443, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_5443
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp5443.pdf
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    References listed on IDEAS

    as
    1. Bose, Subir & Ozdenoren, Emre & Pape, Andreas, 2006. "Optimal auctions with ambiguity," Theoretical Economics, Econometric Society, vol. 1(4), pages 411-438, December.
    2. Bose, Subir & Daripa, Arup, 2009. "A dynamic mechanism and surplus extraction under ambiguity," Journal of Economic Theory, Elsevier, vol. 144(5), pages 2084-2114, September.
    3. John Riley & Richard Zeckhauser, 1983. "Optimal Selling Strategies: When to Haggle, When to Hold Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 267-289.
    4. Bodoh-Creed, Aaron L., 2012. "Ambiguous beliefs and mechanism design," Games and Economic Behavior, Elsevier, vol. 75(2), pages 518-537.
    5. Skreta, Vasiliki, 2006. "Mechanism design for arbitrary type spaces," Economics Letters, Elsevier, vol. 91(2), pages 293-299, May.
    6. Alfredo Di Tillio & Nenad Kos & Matthias Messner, 2012. "The Design of Ambiguous Mechanisms," Working Papers 446, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    7. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    8. Garrett, Daniel F., 2014. "Robustness of simple menus of contracts in cost-based procurement," Games and Economic Behavior, Elsevier, vol. 87(C), pages 631-641.
    9. Kos, Nenad & Messner, Matthias, 2013. "Extremal incentive compatible transfers," Journal of Economic Theory, Elsevier, vol. 148(1), pages 134-164.
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    Citations

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    Cited by:

    1. Dirk Bergemann & Benjamin Brooks & Stephen Morris, 2016. "Informationally Robust Optimal Auction Design," Cowles Foundation Discussion Papers 2065, Cowles Foundation for Research in Economics, Yale University.
    2. Carroll, Gabriel & Meng, Delong, 2016. "Robust contracting with additive noise," Journal of Economic Theory, Elsevier, vol. 166(C), pages 586-604.

    More about this item

    Keywords

    optimal mechanism design; robustness; incentive compatibility; individual rationality; ambiguity aversion;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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