We examine a model of limited communication in which the seller is selling a single good to two potential buyers. Limited communication is modeled as follows: in each of the finite number of periods the seller asks one of the two buyers a binary question. After the final answer, the allocation and the transfers are executed. The model sheds light on the communication protocols that arise in welfare maximizing mechanisms. Among other things, we show that when the total number of questions is bounded the welfare optimal mechanism requires the seller to start with questioning one of the buyers and conclude with a single last question to the other buyer.
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- Pierpaolo Battigalli & Giovanni Maggi, 2002. "Rigidity, Discretion, and the Costs of Writing Contracts," American Economic Review, American Economic Association, vol. 92(4), pages 798-817, September.
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