IDEAS home Printed from https://ideas.repec.org/p/ehl/lserod/35056.html
   My bibliography  Save this paper

Screening with an approximate type space

Author

Listed:
  • Madarász, Kristóf
  • Prat, Andrea

Abstract

Consider a standard single-agent quasilinear mechanism design problem with a potentially large type space. We wish to provide an upper bound to the principal’s payoff loss if she operates on the basis of a discrete approximation rather than the true type space. We show that, if the principal simply uses the mechanism that is optimal for the approximate type space, the loss cannot be bound even as the approximate type space converges to the true one. We propose instead the Profit-Participation algorithm, whereby the principal first computes the optimal mechanism for the approximate type but then she discounts the resulting prices in a way that is proportional to her payoff under the approximate type space for each possible allocation. We bound the principal’s payoff loss and show that it vanishes as approximate type space converges to the true one. We apply our results to situations where the principal faces: (i) computation costs; (ii) search costs; or (iii) model uncertainty.

Suggested Citation

  • Madarász, Kristóf & Prat, Andrea, 2010. "Screening with an approximate type space," LSE Research Online Documents on Economics 35056, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:35056
    as

    Download full text from publisher

    File URL: http://eprints.lse.ac.uk/35056/
    File Function: Open access version.
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Armstrong, Mark, 1996. "Multiproduct Nonlinear Pricing," Econometrica, Econometric Society, vol. 64(1), pages 51-75, January.
    2. Jean-Charles Rochet & Philippe Chone, 1998. "Ironing, Sweeping, and Multidimensional Screening," Econometrica, Econometric Society, vol. 66(4), pages 783-826, July.
    3. Dirk Bergemann & Karl Schlag, 2012. "Robust Monopoly Pricing," World Scientific Book Chapters,in: Robust Mechanism Design The Role of Private Information and Higher Order Beliefs, chapter 13, pages 417-441 World Scientific Publishing Co. Pte. Ltd..
    4. Mark Armstrong, 1999. "Price Discrimination by a Many-Product Firm," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 151-168.
    5. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
    6. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    7. Nisan, Noam & Segal, Ilya, 2006. "The communication requirements of efficient allocations and supporting prices," Journal of Economic Theory, Elsevier, vol. 129(1), pages 192-224, July.
    8. Gregory Dobson & Shlomo Kalish, 1993. "Heuristics for Pricing and Positioning a Product-Line Using Conjoint and Cost Data," Management Science, INFORMS, vol. 39(2), pages 160-175, February.
    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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xavier Gabaix, 2014. "A Sparsity-Based Model of Bounded Rationality," The Quarterly Journal of Economics, Oxford University Press, vol. 129(4), pages 1661-1710.
    2. L. Elisa Celis & Gregory Lewis & Markus Mobius & Hamid Nazerzadeh, 2014. "Buy-It-Now or Take-a-Chance: Price Discrimination Through Randomized Auctions," Management Science, INFORMS, vol. 60(12), pages 2927-2948, December.
    3. Marco Battaglini & Rohit Lamba, 2012. "Optimal Dynamic Contracting," Working Papers 1431, Princeton University, Department of Economics, Econometric Research Program..
    4. Dirk Bergemann & Ji Shen & Yun Xu & Edmund M. Yeh, 2015. "Nonlinear Pricing with Finite Information," Cowles Foundation Discussion Papers 1981, Cowles Foundation for Research in Economics, Yale University.
    5. Prat, Andrea, 2014. "Media Power," CEPR Discussion Papers 10094, C.E.P.R. Discussion Papers.
    6. Garicano, Luis & Prat, Andrea, 2011. "Organizational Economics with Cognitive Costs," CEPR Discussion Papers 8372, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:35056. 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: (LSERO Manager). General contact details of provider: http://edirc.repec.org/data/lsepsuk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.