Mechanism Design with Limited Information: The Case of Nonlinear Pricing

Dirk Bergemann, Ji Shen, Yun Xu and Edmund M. Yeh
Additional contact information
Ji Shen: Department of Economics, Yale University
Yun Xu: Dept. of Electrical Engineering, Yale University
Edmund M. Yeh: Dept. of Electrical Engineering, Yale University

No 1775, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We analyze the canonical nonlinear pricing model with limited information. A seller offers a menu with a finite number of choices to a continuum of buyers with a continuum of possible valuations. By revealing an underlying connection to quantization theory, we derive the optimal finite menu for the socially efficient and the revenue-maximizing mechanism. In both cases, we provide an estimate of the loss resulting from the usage of a finite n-class menu. We show that the losses converge to zero at a rate proportional to 1/n^2 as n becomes large.

Keywords: Mechanism design; Limited information; Nonlinear pricing; Quantization; Lloyd-max optimality (search for similar items in EconPapers)
JEL-codes: D82 D83 D86 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2010-11
New Economics Papers: this item is included in nep-cta
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Citations: View citations in EconPapers (1)

Published in Rahul Jain and Rajgopal Kannan, eds., Game Theory for Networks. Lecture Notes of the Institute for Computer Sciences, Social Informatics and Telecommunications Engineering, Vol. 75, 2012, pp. 1-10

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