Dynamic Communication Mechanism Design

Abstract

This paper considers dynamic communication mechanisms in a quasi-linear single-value environment. The mechanism designer gradually identifies agents’ valuations by iteratively offering prices to agents at different stages. Agents pay the maximum price they accepted if their desirable decision is made. We show that sincere reporting is an ex post equilibrium if and only if a communication mechanism is a monotone-price mechanism. English auctions are essentially unique mechanisms that satisfy ex post incentive compatibility and efficiency. When sincere reporting is not an equilibrium, an allocation rule is implemented in a subgame perfect Nash equilibrium under a certain condition. The efficient allocation rule is implemented regardless of details of a communication process.

Keywords: dynamic communication mechanism, English auctions, binary question, monotone price

JEL Classification: D44, D82