Monopoly Pricing, Optimal Randomization, and Resale

83 Pages Posted: 21 May 2020

See all articles by Simon Loertscher

Simon Loertscher

University of Melbourne - Department of Economics

Ellen Muir

Stanford University - Department of Economics

Date Written: April 9, 2020

Abstract

Would a seller set non-market clearing prices and worry about resale that results from randomization and reduces inefficiency? We show that the optimal mechanism for selling a given quantity of a homogeneous good involves rationing if and only if the revenue function is convex at this quantity. With vertically differentiated goods, like seats in an arena or hotels on a booking platform, the optimal selling mechanism involves conflating goods of differing quality, rationing, and opaque pricing. Although resale harms the seller, and possibly consumers, the optimal selling mechanism involves non-market clearing prices if resale is unavoidable but not too effective.

Keywords: events industry, ticket pricing, secondary markets, rationing, underpricing, conflation, opaque pricing

JEL Classification: C72, D47, D82

Suggested Citation

Loertscher, Simon and Muir, Ellen, Monopoly Pricing, Optimal Randomization, and Resale (April 9, 2020). Available at SSRN: https://ssrn.com/abstract=3585005 or http://dx.doi.org/10.2139/ssrn.3585005

Simon Loertscher

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

Ellen Muir (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
STANFORD, CA 94305-6072
United States

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