Optimal Mechanism for the Sale of a Durable Good

Doval, Laura; Skreta, Vasiliki

doi:10.2139/ssrn.3373051

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Optimal Mechanism for the Sale of a Durable Good

50 Pages Posted: 7 May 2019 Last revised: 26 Aug 2020

See all articles by Laura Doval

Laura Doval

Columbia University - Columbia Business School, Economics

Vasiliki Skreta

University of Texas at Austin - Department of Economics; University College London

There are 2 versions of this paper

Date Written: August 25, 2020

Abstract

We show that posted prices are the optimal mechanism to sell a durable good to a privately informed buyer when the seller has limited commitment in an infinite- horizon setting. We provide a methodology for mechanism design with limited commitment and transferable utility. Whereas in the case of commitment, subject to the buyer’s truthtelling and participation constraints, the seller’s problem is a decision problem, in the case of limited commitment, the seller’s problem corresponds to an intrapersonal game, where different “incarnations" of the seller represent the different beliefs he may have about the buyer’s valuation.

Keywords: mechanism design, limited commitment, intrapersonal equilibrium, information design, self-generation, posted price

JEL Classification: D84, D86

Suggested Citation: Suggested Citation

Doval, Laura and Skreta, Vasiliki, Optimal Mechanism for the Sale of a Durable Good (August 25, 2020). Available at SSRN: https://ssrn.com/abstract=3373051 or http://dx.doi.org/10.2139/ssrn.3373051