Dynamic Revenue Maximization: A Continuous Time Approach

48 Pages Posted: 16 Jul 2014  

Dirk Bergemann

Yale University - Cowles Foundation - Department of Economics; Yale University - Cowles Foundation

Philipp Strack

University of California, Berkeley - Department of Economics

Multiple version iconThere are 4 versions of this paper

Date Written: July 14, 2014

Abstract

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

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

Dirk Bergemann (Contact Author)

Yale University - Cowles Foundation - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States
203-432-3592 (Phone)
203-432-2128 (Fax)

HOME PAGE: http://www.econ.yale.edu/~dirk/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Philipp Strack

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

HOME PAGE: http://philippstrack.com

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