Dynamic Contracting under Positive Commitment

21 Pages Posted: 14 Feb 2017 Last revised: 1 Feb 2018

See all articles by Ilan Lobel

Ilan Lobel

New York University (NYU)

Renato Paes Leme

Google Inc.

Date Written: January 31, 2018

Abstract

We consider a firm that sells products that arrive over time to a buyer. We study this problem under a notion we call positive commitment, where the seller is allowed to make binding positive promises to the buyer about items arriving in the future, but is not allowed to commit not to make further offers to the buyer in the future. We model this problem as a dynamic game where the seller chooses a mechanism at each period subject to a sequential rationality constraint, and characterize the perfect Bayesian equilibrium of this dynamic game. We prove the equilibrium is efficient and that the seller's revenue is a function of the buyer's ex ante utility under a no commitment model. In particular, all goods are sold in advance to the buyer at what we call the positive commitment price.

Suggested Citation

Lobel, Ilan and Paes Leme, Renato, Dynamic Contracting under Positive Commitment (January 31, 2018). Available at SSRN: https://ssrn.com/abstract=2916284 or http://dx.doi.org/10.2139/ssrn.2916284

Ilan Lobel (Contact Author)

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Renato Paes Leme

Google Inc. ( email )

1600 Amphitheatre Parkway
Second Floor
Mountain View, CA 94043
United States

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