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Optimal selling mechanisms for multiproduct monopolists : incentive compatibility in the presence of budget constraints

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  • KLINGER MONTEIRO , Paulo

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

  • PAGE, Frank H. Jr.

    (Department of Finance, University of Alabama, Tuscaloosa, US)

Abstract

We demonstrate the existence of an optimal, individually rational, and incentive compatible selling mechanism for a multiproduct monopolist facing a market populated by consumers with budget constraints. Our main contribution is to show that, in general, when facing consumers with budget constraints the monopolist is able to maximize profits over the set of individually rational and incentive compatible selling mechanisms only if other goods are available and only if the monopolist’s goods are nonessential relative to other goods.

Suggested Citation

  • KLINGER MONTEIRO , Paulo & PAGE, Frank H. Jr., 1997. "Optimal selling mechanisms for multiproduct monopolists : incentive compatibility in the presence of budget constraints," CORE Discussion Papers 1997011, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:1997011
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    File URL: https://uclouvain.be/en/research-institutes/immaq/core/dp-1997.html
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    References listed on IDEAS

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    1. Armstrong, Mark, 1996. "Multiproduct Nonlinear Pricing," Econometrica, Econometric Society, vol. 64(1), pages 51-75, January.
    2. Leonard J. Mirman & David Sibley, 1980. "Optimal Nonlinear Prices for Multiproduct Monopolies," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 659-670, Autumn.
    3. Page, Frank H, Jr, 1992. "Mechanism Design for General Screening Problems with Moral Hazard," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 2(2), pages 265-281, April.
    4. Wilson, Robert, 1996. "Nonlinear pricing and mechanism design," Handbook of Computational Economics,in: H. M. Amman & D. A. Kendrick & J. Rust (ed.), Handbook of Computational Economics, edition 1, volume 1, chapter 5, pages 253-293 Elsevier.
    5. Monteiro, Paulo Klinger, 1996. "A new proof of the existence of equilibrium in incomplete market economies," Journal of Mathematical Economics, Elsevier, vol. 26(1), pages 85-101.
    6. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
    7. Spulber Daniel F., 1993. "Monopoly Pricing," Journal of Economic Theory, Elsevier, vol. 59(1), pages 222-234, February.
    8. Artstein, Zvi, 1979. "A note on fatou's lemma in several dimensions," Journal of Mathematical Economics, Elsevier, vol. 6(3), pages 277-282, December.
    9. McAfee, R. Preston & McMillan, John, 1988. "Multidimensional incentive compatibility and mechanism design," Journal of Economic Theory, Elsevier, vol. 46(2), pages 335-354, December.
    10. Laffont, Jean-Jacques & Robert, Jacques, 1996. "Optimal auction with financially constrained buyers," Economics Letters, Elsevier, vol. 52(2), pages 181-186, August.
    11. Page, F H, Jr, 1991. "Optimal Contract Mechanisms for Principal-Agent Problems with Moral Hazard and Adverse Selection," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 1(4), pages 323-338, October.
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    Cited by:

    1. PAGE, Frank, 2000. "Competitive selling mechanisms: the delegation principle and farsighted stability," CORE Discussion Papers 2000021, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Pass, Brendan, 2012. "Convexity and multi-dimensional screening for spaces with different dimensions," Journal of Economic Theory, Elsevier, vol. 147(6), pages 2399-2418.
    3. Figalli, Alessio & Kim, Young-Heon & McCann, Robert J., 2011. "When is multidimensional screening a convex program?," Journal of Economic Theory, Elsevier, vol. 146(2), pages 454-478, March.
    4. Axel Gautier & Manipushpak Mitra, 2002. "Financing Infrastructure under Budget Constraint," Bonn Econ Discussion Papers bgse15_2002, University of Bonn, Germany.
    5. Naoki Kojima, 2014. "Mechanism design to the budget constrained buyer: a canonical mechanism approach," International Journal of Game Theory, Springer;Game Theory Society, vol. 43(3), pages 693-719, August.
    6. Carlier, Guillaume, 2001. "A general existence result for the principal-agent problem with adverse selection," Journal of Mathematical Economics, Elsevier, vol. 35(1), pages 129-150, February.
    7. Kelvin Shuangjian Zhang, 2017. "Existence in Multidimensional Screening with General Nonlinear Preferences," Papers 1710.08549, arXiv.org.

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