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Optimal Trading for an Informed Seller

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  • Anastasios Dosis

    (ESSEC Business School)

Abstract

A seller with perfect monopoly power trades an indivisible object with a buyer. Both the seller's and the buyer's valuations for the object depend on its quality, which is privately known by the seller. Moreover, the seller has perfect information about the buyer's valuation for each quality. Even though posting a fixed price is ex ante optimal, it might not be interim individually rational and hence not necessarily implementable. The set of interim optimal allocations is charac-terised by solving a parametric linear maximisation program. These allocations might differ from simple price-posting. If the seller offers a menu of contracts, then allocations that are not interim optimal can be supported as equilibrium allocations. However, this sub-optimality result seems not to be robust if there are at least two buyers who can counter-offer menus of contracts after the seller's offer. In that case, an allocation is an equilibrium allocation if and only if it is interim optimal.

Suggested Citation

  • Anastasios Dosis, 2019. "Optimal Trading for an Informed Seller," Working Papers hal-02130450, HAL.
    • Handle: RePEc:hal:wpaper:hal-02130450
    Note: View the original document on HAL open archive server: https://essec.hal.science/hal-02130450
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    References listed on IDEAS

    as
    1. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    2. Dosis, Anastasios, 2016. "On Signalling and Screening," ESSEC Working Papers WP1608, ESSEC Research Center, ESSEC Business School.
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    More about this item

    Keywords

    Informed seller; Common values; Interim optimal trading;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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