Dynamic Revenue Maximization: A Continuous Time Approach

46 Pages Posted: 23 Jan 2015

See all articles by Dirk Bergemann

Dirk Bergemann

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

Philipp Strack

Yale, Department of Economics

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Date Written: January 21, 2015

Abstract

We characterize the revenue-maximizing mechanism for time separable allocation problems 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. The leading example is the repeated sales of a good or a service.

We derive the optimal dynamic mechanism, analyze its qualitative structure and frequently derive its closed form solution. This enables us to compare the distortion in various settings. In particular, we discuss the cases where the type of each agent follows an arithmetic or geometric Brownian motion or a mean reverting process. We show that depending on the nature of the private information the distortion might increase or decrease over time.

Keywords: Mechanism design, Dynamic auctions, Repeated sales, Impulse response function, Stochastic flow

JEL Classification: D44, D82, D83

Suggested Citation

Bergemann, Dirk and Strack, Philipp, Dynamic Revenue Maximization: A Continuous Time Approach (January 21, 2015). Cowles Foundation Discussion Paper No. 1953RR, Available at SSRN: https://ssrn.com/abstract=2553408 or http://dx.doi.org/10.2139/ssrn.2553408

Dirk Bergemann (Contact Author)

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

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

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Philipp Strack

Yale, Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States

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