Managing Strategic Buyers

Johannes Horner

Yale University - Cowles Foundation

Larry Samuelson

Yale University - Department of Economics

November 18, 2008

Cowles Foundation Discussion Paper No. 1684

We consider the problem of a monopolist with an object to sell before some deadline, facing n buyers with independent private values. The monopolist posts prices but has no commitment power. We show that the monopolist can always secure at least the larger of the static monopoly profit and the revenue from a Dutch auction with a zero reserve price. When there are only a few buyers, her profits are higher than this bound, and she essentially posts unacceptable prices up to the very end, at which point prices collapse to a "reservation price" that exceeds marginal cost. When there are many buyers, the seller abandons this reservation price in order to more effectively screen buyers. Her optimal policy then replicates a Dutch auction, with prices decreasing continuously over time. With more units to sell, prices jump up after each sale.

Keywords: Revenue management, Intertemporal price discrimination, Coase conjecture, Perishable goods, Reserve price, Dutch auction

JEL Classification: C72, D42, D82

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Date posted: January 20, 2011  

Suggested Citation

Horner, Johannes and Samuelson, Larry, Managing Strategic Buyers (November 18, 2008). Cowles Foundation Discussion Paper No. 1684. Available at SSRN: https://ssrn.com/abstract=1303494

Contact Information

Johannes Horner (Contact Author)
Yale University - Cowles Foundation ( email )
Box 208281
New Haven, CT 06520-8281
United States

Larry Samuelson
Yale University - Department of Economics ( email )
28 Hillhouse Ave
New Haven, CT 06520-8268
United States
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