Progressive Participation

43 Pages Posted: 31 Jan 2020

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 29, 2020

Abstract

A single seller faces a sequence of buyers with unit demand. The buyers are forward-looking and long-lived but vanish (and are replaced) at a constant rate. The arrival time and the valuation is private information of each buyer and unobservable to the seller. Any incentive compatible mechanism has to induce truth-telling about the arrival time and the evolution of the valuation.

We derive the optimal stationary mechanism, characterize its qualitative structure, and derive a closed-form solution. As the arrival time is private information, the buyer can choose the time at which he reports his arrival. The truth-telling constraint regarding the arrival time can be represented as an optimal stopping problem. The stopping time determines the time at which the buyer decides to participate in the mechanism. The resulting value function of each buyer cannot be too convex and must be continuously diļ¬€erentiable everywhere, reflecting the option value of delaying participation. The optimal mechanism thus induces progressive participation by each buyer: he participates either immediately or at a future random time.

Keywords: Dynamic Mechanism Design, Observable Arrival, Unobservable Arrival, Repeated Sales, Interim Incentive Constraints, Interim Participation Constraints, Stopping Problem, Option Value, Progressive Participation

JEL Classification: D44, D82, D83

Suggested Citation

Bergemann, Dirk and Strack, Philipp, Progressive Participation (January 29, 2020). Cowles Foundation Discussion Paper No. 2189R, Available at SSRN: https://ssrn.com/abstract=3528161 or http://dx.doi.org/10.2139/ssrn.3528161

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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