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Optimal pricing by a risk-averse seller

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  • Tomer Siedner

Abstract

We consider the basic setup of one seller, one buyer, and one good, where the seller is risk averse, and characterize the mechanism that maximizes the seller's expected utility. In contrast to the risk-neutral case, where a single deterministic price is optimal, we show that in the risk averse case the optimal mechanism consists of a continuum of lotteries.

Suggested Citation

  • Tomer Siedner, 2019. "Optimal pricing by a risk-averse seller," Discussion Paper Series dp725, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
  • Handle: RePEc:huj:dispap:dp725
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    File URL: http://ratio.huji.ac.il/sites/default/files/publications/dp725.pdf
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    References listed on IDEAS

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    1. Hart, Sergiu & Nisan, Noam, 2017. "Approximate revenue maximization with multiple items," Journal of Economic Theory, Elsevier, vol. 172(C), pages 313-347.
    2. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    3. Sergiu Hart & Philip J. Reny, 2017. "The Better Half of Selling Separately," Discussion Paper Series dp712, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    4. John Riley & Richard Zeckhauser, 1983. "Optimal Selling Strategies: When to Haggle, When to Hold Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 267-289.
    5. Hart, Sergiu & Reny, Philip J., 2015. "Maximal revenue with multiple goods: nonmonotonicity and other observations," Theoretical Economics, Econometric Society, vol. 10(3), September.
    6. Rochet, J. C., 1985. "The taxation principle and multi-time Hamilton-Jacobi equations," Journal of Mathematical Economics, Elsevier, vol. 14(2), pages 113-128, April.
    7. Manelli, Alejandro M. & Vincent, Daniel R., 2007. "Multidimensional mechanism design: Revenue maximization and the multiple-good monopoly," Journal of Economic Theory, Elsevier, vol. 137(1), pages 153-185, November.
    8. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-286, July.
    9. Sergiu Hart & Noam Nisan, 2013. "The Menu-Size Complexity of Auctions," Discussion Paper Series dp637, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    10. McAfee, R. Preston & McMillan, John, 1987. "Auctions with a stochastic number of bidders," Journal of Economic Theory, Elsevier, vol. 43(1), pages 1-19, October.
    11. Baisa, Brian, 2017. "Auction design without quasilinear preferences," Theoretical Economics, Econometric Society, vol. 12(1), January.
    12. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-86, July.
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    Cited by:

    1. Maya Bar-Hillel & Cass R. Sunstein, 2019. "Baffling bathrooms: On navigability and choice architecture," Discussion Paper Series dp726, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.

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