The Scope of Sequential Screening with Ex-Post Participation Constraints

Dirk Bergemann, Francisco Castro and Gabriel Weintraub
Additional contact information
Francisco Castro: Graduate School of Business, Columbia University
Gabriel Weintraub: Graduate School of Business, Stanford University

No 2078, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We study the classic sequential screening problem under ex-post participation constraints. Thus the seller is required to satisfy buyers� ex-post participation constraints. A leading example is the online display advertising market, in which publishers frequently cannot use up-front fees and instead use transaction-contingent fees. We establish when the optimal selling mechanism is static (buyers are not screened) or dynamic (buyers are screened), and obtain a full characterization of such contracts. We begin by analyzing our model within the leading case of exponential distributions with two types. We provide a necessary and sufficient condition for the optimality of the static contract. If the means of the two types are sufficiently close, then no screening is optimal. If they are sufficiently apart, then a dynamic contract becomes optimal. Importantly, the latter contract randomizes the low type buyer while giving a deterministic allocation to the high type. It also makes the low type worse-off and the high type better-off compared to the contract the seller would offer if he knew the buyer�s type. Our main result establishes a necessary and sufficient condition under which the static contract is optimal for general distributions. We show that when this condition fails, a dynamic contract that randomizes the low type buyer is optimal.

Keywords: Sequential screening; Ex-post participation constraints; Static contract; Dynamic contract (search for similar items in EconPapers)
JEL-codes: C72 D82 D83 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2017-02
New Economics Papers: this item is included in nep-cta, nep-gth and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: The scope of sequential screening with ex post participation constraints (2020)
Working Paper: The Scope of Sequential Screening with Ex-Post Participation Constraints (2020)
Working Paper: The Scope of Sequential Screening with Ex-Post Participation Constraints (2019)
Working Paper: The Scope of Sequential Screening with Ex-Post Participation Constraints (2018)
Working Paper: The Scope of Sequential Screening with Ex-Post Participation Constraints (2018)
Working Paper: The Scope of Sequential Screening with Ex-Post Participation Constraints (2017)
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