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Advanced Economic Seminars 262: Optimal Selling Mechanisms with Buyer Price Search

Publisher:   Time:2019-09-09 09:07:45

Topic: Regional development and carbon emissions in China


Lecturer: Jingfeng Lu, Professor, National University of Singapore


Time: 3:00-4:30 p.m. September 12th, 2019 (Thursday)


Venue: B423, Zhixin Building


Abstract: We study optimal dynamic selling mechanisms when the buyer, who is initially and privately endowed with the value of the object on sale, can conduct costless search for private second-stage outside price. The unique features of this problem include that the second-stage incentive compatibility does not require the usual full monotonicity of the allocation rule, and off-equilibrium-path best strategy cannot be pinned down. We propose a modified Myerson convexification procedure that regularizes the buyer’s virtual value in the dimension of the outside price to identify the revenue-maximizing mechanism in this dynamic setting. At optimum, the seller simply offers a first-stage fixed price, which is only taken by high-value types. In contrast, if the buyer’s second stage outside price is publicly observable, the optimal selling mechanism would take the form of a fixed first-stage price coupled with price matching at the second stage.

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