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Full-Text Articles in Social and Behavioral Sciences
Mechanism Design With Limited Information: The Case Of Nonlinear Pricing, Dirk Bergemann, Ji Shen, Yun Xu, Edmund M. Yeh
Mechanism Design With Limited Information: The Case Of Nonlinear Pricing, Dirk Bergemann, Ji Shen, Yun Xu, Edmund M. Yeh
Cowles Foundation Discussion Papers
We analyze the canonical nonlinear pricing model with limited information. A seller offers a menu with a finite number of choices to a continuum of buyers with a continuum of possible valuations. By revealing an underlying connection to quantization theory, we derive the optimal finite menu for the socially efficient and the revenue-maximizing mechanism. In both cases, we provide an estimate of the loss resulting from the usage of a finite n-class menu. We show that the losses converge to zero at a rate proportional to 1/n2 asn becomes large.
The Role Of Commitment In Bilateral Trade, Dino Gerardi, Johannes Hörner, Lucas Maestri
The Role Of Commitment In Bilateral Trade, Dino Gerardi, Johannes Hörner, Lucas Maestri
Cowles Foundation Discussion Papers
This paper solves for the set of equilibrium payoffs in bargaining with interdependent values when the informed party makes all offers, as discounting vanishes. The seller of a good is informed of its quality, which affects both his cost and the buyer’s valuation, but the buyer is not. To characterize this payoff set, we derive an upper bound, using mechanism design with limited commitment. We then prove that this upper bound is tight, by showing that all its extreme points are equilibrium payoffs. Our results shed light on the role of different forms of commitment on the bargaining process. In …
The Role Of Commitment In Bilateral Trade, Dino Gerardi, Johannes Hörner, Lucas Maestri
The Role Of Commitment In Bilateral Trade, Dino Gerardi, Johannes Hörner, Lucas Maestri
Cowles Foundation Discussion Papers
We examine the buyer-seller problem under different levels of commitment. The seller is informed of the quality of the good, which affects both his cost and the buyer’s valuation, but the buyer is not. We characterize the allocations that can be achieved through mechanisms in which, unlike with full commitment, the buyer has the option to “walk away” after observing a given offer. We further characterize the equilibrium payoffs that can be achieved in the bargaining game in which the seller makes all the offers, as the discount factor goes to one. This allows us to identify how different levels …