On the Optimality of Price-posting in Rental Markets
Diskussionsschriften from Universitaet Bern, Departement Volkswirtschaft
This paper considers a multi-period setting where a monopolist, with short-term commitment, rents one unit of a durable good to a single consumer in every period. The consumer's valuation constitutes his private information and remains constant over time. By using a mechanism design approach, the paper shows that the optimal renting strategy is to offer a simple price in every period. Although sophisticated mechanisms can make separation feasible when price-posting cannot achieve it, this happens precisely when separation is dominated by pooling. Moreover, the monopolist's choice of whether to discriminate or not depends on a simple and apparently myopic rule, reminiscent of its static equivalent.
Keywords: Durable good; renting; dynamic adverse selection; mechanism design; short-term commitment; price-posting (search for similar items in EconPapers)
JEL-codes: D82 D86 D42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-des and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:ube:dpvwib:dp2007
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