Sequentially Optimal Mechanisms
We characterize the revenue maximizing mechanism in a two-period model. A risk neutral seller owns one unit of a durable good and faces a risk neutral buyer whose valuation is private information. The seller has all the bargaining power; she designs an institution to sell the object at t0 but she cannot commit not to change the institution at t1 if trade does not occur at t0. The seller's objective is to pick the revenue maximizing mechanism. We show that if the probability density function of the buyer's valuation satisfies certain conditions, the optimal mechanism is to post a price in each period. Previous work has examined price dynamics when the seller behaves sequentially rationally. We provide a reason for the seller's choice to post a price even though she can use infinitely many other possible institutions: posted price selling is the optimal strategy in the sense that it maximizes the seller's revenues. Keywords: mechanism design, optimal auctions, sequential rationality.
(This abstract was borrowed from another version of this item.)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Drew Fudenberg & David K. Levine & Jean Tirole, 1985. "Infinite-Horizon Models of Bargaining with One-Sided Incomplete Information," Levine's Working Paper Archive 1098, David K. Levine.
- Bester, Helmut & Strausz, Roland, 2001. "Contracting with Imperfect Commitment and the Revelation Principle: The Single Agent Case," Econometrica, Econometric Society, vol. 69(4), pages 1077-98, July.
- Riley, John G & Samuelson, William F, 1981.
American Economic Review,
American Economic Association, vol. 71(3), pages 381-92, June.
- Gul, Faruk & Sonnenschein, Hugo & Wilson, Robert, 1986.
"Foundations of dynamic monopoly and the coase conjecture,"
Journal of Economic Theory,
Elsevier, vol. 39(1), pages 155-190, June.
- Faruk Gul & Hugo Sonnenschein & Robert Wilson, 2010. "Foundations of Dynamic Monopoly and the Coase Conjecture," Levine's Working Paper Archive 232, David K. Levine.
- Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
- Laffont, Jean-Jacques & Tirole, Jean, 1988.
"The Dynamics of Incentive Contracts,"
Econometric Society, vol. 56(5), pages 1153-75, September.
- Rey, Patrick & Salanie, Bernard, 1996. "On the Value of Commitment with Asymmetric Information," Econometrica, Econometric Society, vol. 64(6), pages 1395-1414, November.
- Bester, Helmut & Strausz, Roland, 2007.
"Contracting with imperfect commitment and noisy communication,"
Journal of Economic Theory,
Elsevier, vol. 136(1), pages 236-259, September.
- Bester, Helmut & Strausz, Roland, 2003. "Contracting with Imperfect Commitment and Noisy Communication," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 2, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Helmut Bester & Roland Strausz, . "Contracting with Imperfect Commitment and Noisy Communication," Papers 017, Departmental Working Papers.
- Roger B. Myerson, 1984.
"Multistage Games with Communication,"
590, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Laffont, Jean-Jacques & Tirole, Jean, 1990.
"Adverse Selection and Renegotiation in Procurement,"
Review of Economic Studies,
Wiley Blackwell, vol. 57(4), pages 597-625, October.
- Laffont, Jean-Jacques & Tirole, Jean., 1988. "Adverse Selection and Renegotiation in Procurement," Working Papers 665, California Institute of Technology, Division of the Humanities and Social Sciences.
- Jean-Jacques LAFFONT & Jean TIROLE, 1990. "Adverse Selection and Renegotiation in Procurement," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9005, Université de Lausanne, Faculté des HEC, DEEP.
- Hart, Oliver D & Tirole, Jean, 1988.
"Contract Renegotiation and Coasian Dynamics,"
Review of Economic Studies,
Wiley Blackwell, vol. 55(4), pages 509-40, October.
- Myerson, Roger B., 1982. "Optimal coordination mechanisms in generalized principal-agent problems," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 67-81, June.
- Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
- Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April.
- Robert J. Aumann & Sergiu Hart, 2003.
"Long Cheap Talk,"
Econometric Society, vol. 71(6), pages 1619-1660, November.
- Skreta, Vasiliki, 2006. "Mechanism design for arbitrary type spaces," Economics Letters, Elsevier, vol. 91(2), pages 293-299, May.
- V. Crawford & J. Sobel, 2010.
"Strategic Information Transmission,"
Levine's Working Paper Archive
544, David K. Levine.
- Riley, John & Zeckhauser, Richard, 1983. "Optimal Selling Strategies: When to Haggle, When to Hold Firm," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 267-89, May.
- Maskin, Eric & Tirole, Jean, 1992. "The Principal-Agent Relationship with an Informed Principal, II: Common Values," Econometrica, Econometric Society, vol. 60(1), pages 1-42, January.
- Myerson, Roger B., 1994. "Communication, correlated equilibria and incentive compatibility," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 2, chapter 24, pages 827-847 Elsevier.
- McAfee, R. Preston & Vincent, Daniel, 1997.
"Sequentially Optimal Auctions,"
Games and Economic Behavior,
Elsevier, vol. 18(2), pages 246-276, February.
- Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Freixas, Xavier & Guesnerie, Roger & Tirole, Jean, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 173-91, April.
When requesting a correction, please mention this item's handle: RePEc:cla:najeco:391749000000000488. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David K. Levine)
If references are entirely missing, you can add them using this form.