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The Scope of Sequential Screening with Ex-Post Participation Constraints

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Abstract

We study the classic sequential screening problem in the presence of ex-post participation constraints. We establish necessary and sufficient conditions that determine exhaustively when the optimal selling mechanism is either static or sequential. In the static contract, the buyers are not screened with respect to their interim type and the object is sold at a posted price. In the sequential contract, the buyers are screened with respect to their interim type and a menu of quantities is offered. We completely characterize the optimal sequential contract with binary interim types and a continuum of ex-post values. Importantly, the optimal sequential contract randomizes the allocation of the low type buyer while giving a deterministic allocation to the high type. Finally, we provide additional results for the case of multiple interim types.

Suggested Citation

  • Dirk Bergemann & Francisco Castro & Gabriel Weintraub, 2017. "The Scope of Sequential Screening with Ex-Post Participation Constraints," Cowles Foundation Discussion Papers 2078R3, Cowles Foundation for Research in Economics, Yale University, revised Jul 2019.
    • Handle: RePEc:cwl:cwldpp:2078r3
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    References listed on IDEAS

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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