Optimal Selling in Dynamic Auctions: Information Versus Commitment

Abstract

This paper analyzes optimal selling strategies of a monopolist facing forward-looking patient unit-demand bidders in a sequential auction-market. Such a seller faces a fundamental choice between two selling regimes: adaptive selling which involves learning about remaining demand from early prices, and commitment selling which foregoes such learning and makes all selling decisions in the beginning of the game. A model of the game between the seller and the bidders is proposed to characterize the optimal regime-choice. The model implies that the relative profitability of the two regimes depends on the expected gains from trade: when the expected gains from trade are low, commitment dominates adaptation and vice versa.

Keywords: Auctions, Game-theory, Durable-goods monopoly, Optimal selling

JEL Classification: D44