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Optimal mechanism for the sale of a durable good

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  • Doval, Laura

    (Columbia Business School, Columbia University)

  • Skreta, Vasiliki

    (Department of Economics, University of Texas at Austin and Department of Economics, University College London)

Abstract

A buyer wishes to purchase a durable good from a seller who in each period chooses a mechanism under limited commitment. The buyer's value is binary and fully persistent. We show that posted prices implement all equilibrium outcomes of an infinite-horizon, mechanism-selection game. Despite being able to choose mechanisms, the seller can do no better and no worse than if he chose prices in each period, so that he is subject to Coase's conjecture. Our analysis marries insights from information and mechanism design with those from the literature on durable goods. We do so by relying on the revelation principle in Doval and Skreta (2022).

Suggested Citation

  • Doval, Laura & Skreta, Vasiliki, 2024. "Optimal mechanism for the sale of a durable good," Theoretical Economics, Econometric Society, vol. 19(2), May.
    • Handle: RePEc:the:publsh:4485
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    2. Juan Beccuti, 2020. "On the Optimality of Price-posting in Rental Markets," Diskussionsschriften dp2007, Universitaet Bern, Departement Volkswirtschaft.
    3. Quitz'e Valenzuela-Stookey, 2020. "Screening and Information-Sharing Externalities," Papers 2011.04013, arXiv.org.
    4. S. Nageeb Ali & Navin Kartik & Andreas Kleiner, 2023. "Sequential Veto Bargaining With Incomplete Information," Econometrica, Econometric Society, vol. 91(4), pages 1527-1562, July.
    5. Ekmekci, Mehmet & Maestri, Lucas, 2022. "Wait or act now? Learning dynamics in stopping games," Journal of Economic Theory, Elsevier, vol. 205(C).
    6. Martino Banchio & Frank Yang, 2021. "Dynamic Pricing with Limited Commitment," Papers 2102.07742, arXiv.org, revised Dec 2021.
    7. Rivera Mora, Ernesto, 2024. "Mechanism design with belief-dependent preferences," Journal of Economic Theory, Elsevier, vol. 216(C).
    8. Francesco Giovannoni & Toomas Hinnosaar, 2022. "Pricing Novel Goods," Papers 2208.04985, arXiv.org, revised Aug 2024.
    9. Fabio Antoniou & Raffaele Fiocco, 2023. "Storable Good Market With Intertemporal Cost Variations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(1), pages 361-385, February.

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    More about this item

    Keywords

    Mechanism design; limited commitment; information design; public PBE; posted prices; Coase conjecture;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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