Dynamic screening with limited commitment

Rahul Deb and Maher Said

Journal of Economic Theory, 2015, vol. 159, issue PB, 891-928

Abstract: We examine a model of dynamic screening and price discrimination in which the seller has limited commitment power. Two cohorts of anonymous, patient, and risk-neutral buyers arrive over two periods. Buyers in the first cohort arrive in period one, are privately informed about the distribution of their values, and then privately learn the value realizations in period two. Buyers in the second cohort are “last-minute shoppers” that already know their values upon their arrival in period two. The seller can fully commit to a long-term contract with buyers in the first cohort, but cannot commit to the future contractual terms that will be offered to second-cohort buyers. The expected second-cohort contract serves as an endogenous type-dependent outside option for first-cohort buyers, reducing the seller's ability to extract rents via sequential contracts. We derive the seller-optimal equilibrium and show that, when the seller cannot condition on future contractual terms (either explicitly or implicitly), she endogenously generates a commitment to maintaining high future prices by manipulating the timing of contracting.

Keywords: Asymmetric information; Dynamic mechanism design; Limited commitment; Recontracting; Sequential screening; Type-dependent participation (search for similar items in EconPapers)
JEL-codes: C73 D82 D86 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

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Working Paper: Dynamic Screening with Limited Commitment (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:159:y:2015:i:pb:p:891-928

DOI: 10.1016/j.jet.2015.05.015

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