Optimal Selling Mechanisms with Endogenous Proposal Rights

28 Pages Posted: 25 Feb 2019

See all articles by Sarah Auster

Sarah Auster

Bocconi University - Baffi Carefin Centre

Nenad Kos

Bocconi University - Department of Economics

Salvatore Piccolo

University of Bergamo, Compass Lexecon and CSEF

Date Written: February 2019

Abstract

We study a model of optimal pricing where the right to propose a mechanism is determined endogenously: a privately informed buyer covertly invests to increase the probability of offering a mechanism. We establish the existence of equilibrium and show that higher types get to propose a mechanism more often than lower types allowing the seller to learn from the trading process. In any equilibrium, the seller either offers the price he would have offered if he was always the one to make an offer or randomises over prices. Pure strategy equilibria may fail to exist, even when types are continuously distributed. A full characterization of equilibria is provided in the model with two types, where notably the seller's profit is shown to be non-monotonic in the share of high-value buyers.

Keywords: bargaining power, mechanism design, Optimal Pricing

JEL Classification: C72, D82, D83

Suggested Citation

Auster, Sarah and Kos, Nenad and Piccolo, Salvatore, Optimal Selling Mechanisms with Endogenous Proposal Rights (February 2019). CEPR Discussion Paper No. DP13542, Available at SSRN: https://ssrn.com/abstract=3341349

Sarah Auster (Contact Author)

Bocconi University - Baffi Carefin Centre ( email )

Via Roentgen 1
Milan
Italy

Nenad Kos

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Salvatore Piccolo

University of Bergamo, Compass Lexecon and CSEF ( email )

via de caniana 2
24127
Bergamo, BG 24127
Italy

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