Sequentially Optimal Mechanisms

This paper establishes that posting a price in each period is a revenue-maximizing allocation mechanism in a finite period model without commitment. A risk-neutral seller has one object to sell and faces a risk-neutral buyer whose valuation is private information and drawn from an arbitrary bounded...

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Bibliographic Details
Published in:The Review of economic studies 2006-10, Vol.73 (4), p.1085-1111
Main Author: Skreta, Vasiliki
Format: Article
Language:English
Subjects:
Budget allocation
Business orders
Continuum mechanics
D82
Durable goods
Economic models
Mechanism design
Monopoly
Revenue
Social choice
Trade
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Summary:This paper establishes that posting a price in each period is a revenue-maximizing allocation mechanism in a finite period model without commitment. A risk-neutral seller has one object to sell and faces a risk-neutral buyer whose valuation is private information and drawn from an arbitrary bounded subset of the real line. The seller has all the bargaining power: she designs a mechanism to sell the object at t, but if trade does not occur at t she can propose another mechanism at t + 1. We show that posting a price in each period is an optimal mechanism. A methodological contribution of the paper is to develop a procedure to characterize optimal dynamic incentive schemes under non-commitment that is valid irrespective of the structure of the agent's type.
ISSN:0034-6527
1467-937X
DOI:10.1111/j.1467-937X.2006.00409.x