Journal Article

Sequentially Optimal Mechanisms

Vasiliki Skreta

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 73, issue 4, pages 1085-1111
Published in print October 2006 | ISSN: 0034-6527
Published online October 2006 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2006.00409.x
Sequentially Optimal Mechanisms

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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.

Keywords: D82

Journal Article.  13792 words.  Illustrated.

Subjects: Information, Knowledge, and Uncertainy

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