Optimal Mechanism for the Sale of a Durable Good
50 Pages Posted: 7 May 2019 Last revised: 26 Aug 2020
Date Written: August 25, 2020
We show that posted prices are the optimal mechanism to sell a durable good to a privately informed buyer when the seller has limited commitment in an infinite- horizon setting. We provide a methodology for mechanism design with limited commitment and transferable utility. Whereas in the case of commitment, subject to the buyer’s truthtelling and participation constraints, the seller’s problem is a decision problem, in the case of limited commitment, the seller’s problem corresponds to an intrapersonal game, where different “incarnations" of the seller represent the different beliefs he may have about the buyer’s valuation.
Keywords: mechanism design, limited commitment, intrapersonal equilibrium, information design, self-generation, posted price
JEL Classification: D84, D86
Suggested Citation: Suggested Citation