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Optimal Mechanism for Selling Two Goods

We solve for the optimal mechanism for selling two goods when the buyer’s demand characteristics are unobservable. In the case of substitutable goods, the seller has an incentive to offer lotteries over goods in order to charge the buyers with large differences in the valuations a higher price for obtaining their desired good with certainty. However, the seller also has a countervailing incentive to make the allocation of the goods among the participating buyers more efficient in order to increase the overall demand. In the case when the buyer can consume both goods, the seller has an incentive to underprovide one of the goods in order to charge the buyers with large valuations a higher price for the bundle of both goods. As in the case of substitutable goods, the seller also has a countervailing incentive to lower the price of the bundle in order to increase the overall demand.

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Paper provided by University of Western Ontario, Department of Economics in its series UWO Department of Economics Working Papers with number 20103.

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Date of creation: 2010
Date of revision:
Handle: RePEc:uwo:uwowop:20103
Contact details of provider: Postal: Department of Economics, Reference Centre, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85244
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  1. Thanassoulis, John, 2004. "Haggling over substitutes," Journal of Economic Theory, Elsevier, vol. 117(2), pages 217-245, August.
  2. repec:tpr:qjecon:v:90:y:1976:i:3:p:475-98 is not listed on IDEAS
  3. Pavlov Gregory, 2011. "A Property of Solutions to Linear Monopoly Problems," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 11(1), pages 1-18, February.
  4. McAfee, R. Preston & McMillan, John, 1988. "Multidimensional incentive compatibility and mechanism design," Journal of Economic Theory, Elsevier, vol. 46(2), pages 335-354, December.
  5. Armstrong, Mark, 1996. "Multiproduct Nonlinear Pricing," Econometrica, Econometric Society, vol. 64(1), pages 51-75, January.
  6. 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.
  7. Jean-Charles Rochet & Philippe Chone, 1998. "Ironing, Sweeping, and Multidimensional Screening," Econometrica, Econometric Society, vol. 66(4), pages 783-826, July.
  8. Mathias Dewatripont & Lars Peter Hansen & Stephen Turnovsky, 2003. "Advances in economics and econometrics: the eighth world congress," ULB Institutional Repository 2013/9557, ULB -- Universite Libre de Bruxelles.
  9. repec:tpr:qjecon:v:104:y:1989:i:2:p:371-83 is not listed on IDEAS
  10. Gregory Pavlov, 2006. "Optimal Mechanism for Selling Substitutes," Boston University - Department of Economics - Working Papers Series WP2006-014, Boston University - Department of Economics.
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