Optimal mechanism for the sale of a durable good

A buyer wishes to purchase a durable good from a seller who in each period chooses a mechanism under limited commitment. The buyer's value is binary and fully persistent. We show that posted prices implement all equilibrium outcomes of an infinite‐horizon, mechanism‐selection game. Despite bein...

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Bibliographic Details
Published in:Theoretical economics 2024-05, Vol.19 (2), p.865-915
Main Authors: Doval, Laura, Skreta, Vasiliki
Format: Article
Language:English
Subjects:
Buyers
Coase conjecture
D84
D86
Design
Durable goods
Economic theory
Equilibrium
Games
information design
limited commitment
Mechanism design
posted prices
Prices
public PBE
Valuation
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Summary:A buyer wishes to purchase a durable good from a seller who in each period chooses a mechanism under limited commitment. The buyer's value is binary and fully persistent. We show that posted prices implement all equilibrium outcomes of an infinite‐horizon, mechanism‐selection game. Despite being able to choose mechanisms, the seller can do no better and no worse than if he chose prices in each period, so that he is subject to Coase's conjecture. Our analysis marries insights from information and mechanism design with those from the literature on durable goods. We do so by relying on the revelation principle in Doval and Skreta (2022).
ISSN:1933-6837
1555-7561
DOI:10.3982/TE4485