Selling to the Mean

46 Pages Posted: 31 Jul 2015

See all articles by Nenad Kos

Nenad Kos

Bocconi University - Department of Economics

Matthias Messner

University of Cologne

Multiple version iconThere are 2 versions of this paper

Date Written: July 30, 2015

Abstract

We study optimal selling strategies of a seller who is poorly informed about the buyer’s value for the object. When the maxmin seller only knows that the mean of the distribution of the buyer’s valuations belongs to some interval then nature can keep him to payoff zero no matter how much information the seller has about the mean. However, when the seller has information about the mean and the variance, or the mean and the upper bound of the support, the seller optimally commits to a randomization over prices and obtains a strictly positive payoff. In such a case additional information about the mean and/or the variance affects his payoff.

Keywords: optimal mechanism design, robustness, incentive compatibility, individual rationality, ambiguity aversion

JEL Classification: C720, D440, D820

Suggested Citation

Kos, Nenad and Messner, Matthias, Selling to the Mean (July 30, 2015). CESifo Working Paper Series No. 5443, Available at SSRN: https://ssrn.com/abstract=2637841 or http://dx.doi.org/10.2139/ssrn.2637841

Nenad Kos

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Matthias Messner (Contact Author)

University of Cologne ( email )

Albertus Magnus Platz
Cologne, NRW 50923
Germany

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