Dynamic Revenue Maximization: A Continuous Time Approach

Dirk Bergemann and Philipp Strack ()

No 1953R3, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We characterize the revenue-maximizing mechanism for time separable allocation problems in continuous time. The willingness-to-pay of each agent is private information and changes over time. We derive the dynamic revenue-maximizing mechanism, analyze its qualitative structure and frequently derive its closed form solution. In the leading example of repeat sales of a good or service, we establish that commonly observed contract features such as at rates, free consumption units and two-part tariffs emerge as part of the optimal contract. We investigate in detail the environments in which the type of each agent follows an arithmetic or geometric Brownian motion or a mean-reverting process. We analyze the allocative distortions and show that depending on the nature of the private information the distortion might increase or decrease over time.

Keywords: Dynamic mechanism design; Repeated sales; Stochastic flow; Flat rates; Two-part Tariffs; Leasing (search for similar items in EconPapers)
JEL-codes: D44 D82 D83 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2014-07, Revised 2015-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39)

Published in Journal of Economic Theory (September 2015), 159, Part B: 819-853

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