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Managing Strategic Buyers

We consider the problem of a monopolist who must sell her inventory before some deadline, facing n buyers with independent private values. The monopolist posts prices but has no commitment power. The seller faces a basic trade-off between imperfect price discrimination and maintaining an effective reserve price. When there is only one unit and only a few buyers, the seller essentially posts unacceptable prices up to the very end, at which point prices collapse in a series of jumps to a "reserve price" that exceeds marginal cost. When there are many buyers, the seller abandons this reserve price in order to more effectively screen buyers. Her optimal policy then replicates a Dutch auction, with prices decreasing continuously over time.

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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1684R.

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Length: 61 pages
Date of creation: Nov 2008
Date of revision: Sep 2010
Publication status: Published in Journal of Political Economy (July 2011), 119(2): 379-429
Handle: RePEc:cwl:cwldpp:1684r
Contact details of provider: Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
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Fax: (203) 432-6167
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Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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  1. Kahn, Charles M, 1986. "The Durable Goods Monopolist and Consistency with Increasing Costs," Econometrica, Econometric Society, vol. 54(2), pages 275-94, March.
  2. Bagnoli, Mark & Salant, Stephen W & Swierzbinski, Joseph E, 1989. "Durable-Goods Monopoly with Discrete Demand," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1459-78, December.
  3. Alex Gershkov & Benny Moldovanu, 2009. "Dynamic Revenue Maximization with Heterogeneous Objects: A Mechanism Design Approach," American Economic Journal: Microeconomics, American Economic Association, vol. 1(2), pages 168-98, August.
  4. Athey, S., 1997. "Sigle Crossing Properties and the Existence of Pure Strategy Equilibria in Games of Incomplete Information," Working papers 97-11, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Preston McAfee, 2003. "Capacity Choice Counters the Coase Conjecture," Theory workshop papers 505798000000000046, UCLA Department of Economics.
  6. Vasiliki Skreta, 2008. "Optimal Auction Design Under Non-Commitment," Working Papers 08-14, New York University, Leonard N. Stern School of Business, Department of Economics.
  7. 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.
  8. von der Fehr, Nils-Henrik Morch & Kuhn, Kai-Uwe, 1995. "Coase versus Pacman: Who Eats Whom in the Durable-Goods Monopoly?," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 785-812, August.
  9. repec:oup:restud:v:75:y:2008:i:1:p:317-332 is not listed on IDEAS
  10. repec:oup:restud:v:79:y:2012:i:4:p:1341-1369 is not listed on IDEAS
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