Sequential Mechanisms with Ex Post Individual Rationality

Itai Ashlagi (), Constantinos Daskalakis () and Nima Haghpanah ()
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Itai Ashlagi: Department of Management Science and Engineering, Stanford University, Stanford, California 94305
Constantinos Daskalakis: Computer Science & Artificial Intelligence Laboratory, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139
Nima Haghpanah: Department of Economics, Pennsylvania State University, University Park, Pennsylvania 16802

Operations Research, 2023, vol. 71, issue 1, 245-258

Abstract: We study optimal mechanisms for selling multiple products to a buyer who learns her values for those products sequentially. A mechanism may use static prices or adjust them over time, and it may sell the products separately or as bundles. We study mechanisms that provide the buyer a nonnegative ex post utility. We show that there exists an optimal mechanism that determines the allocation of each product as soon as the buyer learns her value for that product. This observation allows us to solve for optimal mechanisms recursively. We use this recursive characterization to show that static mechanisms are suboptimal if the buyer first learns her values for products that are ex ante less valuable. Under this condition, the ability to bundle products is less profitable than the ability to adjust prices dynamically.

Keywords: Market Analytics and Revenue Management; sequential mechanisms; multiproduct monopolist; ex post individual rationality (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:71:y:2023:i:1:p:245-258

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