Non-optimality of state by state monopoly pricing with demand uncertainty: An example

James Peck and Jeevant Rampal

Economics Letters, 2019, vol. 183, issue C, -

Abstract: This paper considers a monopoly’s profit maximizing problem, where there is a continuum of consumers with unit demand, and valuations are given by one of two possible demand distributions/states. The firm’s problem is to maximize profits by choosing an optimal mechanism among direct revelation mechanisms that satisfy interim incentive compatibility and ex-post individual rationality. We show that setting the monopoly price in each demand state may not be optimal.

Keywords: Monopoly mechanism; Correlated valuations; Bayesian incentive compatibility; Ex-post individual rationality (search for similar items in EconPapers)
JEL-codes: C72 D82 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:183:y:2019:i:c:9

DOI: 10.1016/j.econlet.2019.108561

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