48 Pages Posted: 16 Jul 2014
Date Written: July 14, 2014
We characterize the profit-maximizing mechanism for repeatedly selling a non-durable good in continuous time. The valuation of each agent is private information and changes over time. At the time of contracting every agent privately observes his initial type which influences the evolution of his valuation process. In the profit-maximizing mechanism the allocation is distorted in favor of agents with high initial types.
We derive the optimal mechanism in closed form, which enables us to compare the distortion in various examples. The case where the valuation of the agents follows an arithmetic/geometric Brownian motion, Ornstein-Uhlenbeck process, or is derived from a Bayesian learning model are discussed. We show that depending on the nature of the private information and the valuation process the distortion might increase or decrease over time.
Keywords: Mechanism design, Dynamic auctions, Repeated sales
JEL Classification: D44, D82, D83
Suggested Citation: Suggested Citation
Bergemann, Dirk and Strack, Philipp, Dynamic Revenue Maximization: A Continuous Time Approach (July 14, 2014). Cowles Foundation Discussion Paper No. 1953. Available at SSRN: https://ssrn.com/abstract=2465963 or http://dx.doi.org/10.2139/ssrn.2465963