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Static Pricing in Dynamic Sales

Martino Banchio and Frank Yang

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Abstract: A monopolist sells items repeatedly over time to a consumer with persistent private information. The seller has limited commitment: she cannot commit to a long-term contract but always has the option to commit to posted prices for unsold items. We show that a static price path is the unique equilibrium outcome; that is, the seller cannot do better than simply posting the monopoly price for each item. The ratchet effect eliminates price discrimination gains for any degree of persistence of the private information. The paper also shows how dynamic mechanism design can help derive new results in games with limited commitment.

Date: 2021-02
New Economics Papers: this item is included in nep-cta, nep-des, nep-mic and nep-reg
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