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Dynamic Revenue Maximization: A Continuous Time Approach

Dirk Bergemann and Philipp Strack ()

No 1953R, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We characterize the profit-maximizing mechanism for repeatedly selling a non-durable good in continuous time. The valuation of each agent is private information and changes over time. At the time of contracting every agent privately observes his initial type which influences the evolution of his valuation process. In the profit-maximizing mechanism the allocation is distorted in favor of agents with high initial types. We derive the optimal mechanism in closed form, which enables us to compare the distortion in various examples. The case where the valuation of the agents follows an arithmetic/geometric Brownian motion, Ornstein-Uhlenbeck process, or is derived from a Bayesian learning model are discussed. We show that depending on the nature of the private information and the valuation process the distortion might increase or decrease over time.

Keywords: Mechanism design; Dynamic auctions; Repeated sales (search for similar items in EconPapers)
JEL-codes: D44 D82 D83 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2014-07, Revised 2014-09
New Economics Papers: this item is included in nep-cta and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Dynamic revenue maximization: A continuous time approach (2015) Downloads
Working Paper: Dynamic Revenue Maximization: A Continuous Time Approach (2015) Downloads
Working Paper: Dynamic Revenue Maximization: A Continuous Time Approach (2015) Downloads
Working Paper: Dynamic Revenue Maximization: A Continuous Time Approach (2015) Downloads
Working Paper: Dynamic Revenue Maximization: A Continuous Time Approach (2014) Downloads
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