Working Paper: CEPR ID: DP13967
Authors: Laura Doval; Vasiliki Skreta
Abstract: We show that posted prices are the optimal mechanism to sell a durable good to a privately informed buyer when the seller has limited commitment in an infinite horizon setting. We provide a methodology for mechanism design with limited commitment and transferable utility. Whereas in the case of commitment, subject to the buyer's truthtelling and participation constraints, the seller's problem is a decision problem, in the case of limited commitment, the seller's problem corresponds to an intrapersonal game, where different "incarnations" of the seller represent the different beliefs he may have about the buyer's valuation.
Keywords: mechanism design; limited commitment; intrapersonal equilibrium; information design; self-generation; posted price
JEL Codes: D84; D86
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Seller's choice of mechanism (D47) | Buyer's purchasing decision (D12) |
| Optimal mechanism (D47) | Revenue maximization for the seller (D40) |
| Seller's beliefs about buyer's valuation (D44) | Effectiveness of posted prices (D41) |
| Posted prices (P22) | Highest expected revenue over time (H27) |
| Seller's inability to commit (D52) | Optimality of posted prices (D41) |