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Nonlinear Pricing with Arbitrage: On the Role of Correlation

  • Meng, Dawen
  • Tian, Guoqiang

In nonlinear pricing environment with correlated types, we characterize optimal selling mechanisms when buyers could form a coalition to coordinate their reports and to arbitrage on the goods. We find that when the types of agents are weakly positively correlated, the optimal weakly collusion-proof mechanism calls for distortions away from e±ciency obtained without arbitrage; when the types are weakly negatively correlated, the monopolist can achieve the same profit regardless of whether or not buyers can arbitrage on their goods. Allowing arbitrage within coalitions result in right discontinuity between the correlated and uncorrelated environment, but the left continuity is still available.

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File URL: http://mpra.ub.uni-muenchen.de/41207/1/MPRA_paper_41207.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 41207.

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Date of creation: Aug 2008
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Handle: RePEc:pra:mprapa:41207
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  1. Laffont, Jean-Jacques & Martimort, David, 1998. "Mechanism Design with Collusion and Correlation," IDEI Working Papers 81, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Laffont, Jean-Jacques, 2001. "Incentives and Political Economy," OUP Catalogue, Oxford University Press, number 9780199248681, March.
  3. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
  4. Marshall, R.C. & Richard J.F., 1995. "Bider Collusion at Forest Service Timber Sales," Papers 7-95-3, Pennsylvania State - Department of Economics.
  5. Lucia Quesada, 2005. "Collusion as an Informed Principal Problem," Game Theory and Information 0504002, EconWPA.
  6. Doh Shin Jeon & Domenico Menicucci, 2001. "Optimal second-degree price discrimination and arbitrage: On the role of asymetric information among buyers," Economics Working Papers 624, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2005.
  7. Faure-Grimaud, Antoine & Laffont, Jean-Jacques & Martimort, David, 2003. "Collusion, Delegation and Supervision with Soft Information," IDEI Working Papers 167, Institut d'Économie Industrielle (IDEI), Toulouse.
  8. Laffont & Martimort, 1997. "Collusion under asymmetric information," Working Papers 152574, Institut National de la Recherche Agronomique, France.
  9. Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-61, March.
  10. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-57, November.
  11. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
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