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Mechanism design without monotone differences: an example featuring buyer habits

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  • Levent Ülkü

    (Department of Economics and CIE, ITAM)

Abstract

Within a simple parametric example, I show that if the buyer’s values fail the monotone differences condition, nonmonotone mechanisms are not just feasible but may even be desirable for a seller. The failure of monotone differences is caused by intertemporal consumption externalities in the form of habits. I show that for an interval of habit parameters the revenue maximizing mechanism is nonmonotone: the seller screens out low and high types.

Suggested Citation

  • Levent Ülkü, 2014. "Mechanism design without monotone differences: an example featuring buyer habits," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 2(2), pages 183-195, October.
    • Handle: RePEc:spr:etbull:v:2:y:2014:i:2:d:10.1007_s40505-014-0036-6
    DOI: 10.1007/s40505-014-0036-6
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    References listed on IDEAS

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    1. Matthews, Steven & Moore, John, 1987. "Monopoly Provision of Quality and Warranties: An Exploration in the Theory of Multidimensional Screening," Econometrica, Econometric Society, vol. 55(2), pages 441-467, March.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Implementation; Monotonicity; Monotone differences; Habits;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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