CFDP 1684R

Managing Strategic Buyers

Author(s): 

Publication Date: November 2008

Revision Date: September 2010

Pages: 67

Abstract: 

We consider the problem of a monopolist who must sell her inventory before some deadline, facing n buyers with independent private values. The monopolist posts prices but has no commitment power. The seller faces a basic trade-off between imperfect price discrimination and maintaining an effective reserve price. When there is only one unit and only a few buyers, the seller essentially posts unacceptable prices up to the very end, at which point prices collapse in a series of jumps to a “reserve price” that exceeds marginal cost. When there are many buyers, the seller abandons this reserve price in order to more effectively screen buyers. Her optimal policy then replicates a Dutch auction, with prices decreasing continuously over time.

Keywords: 

Revenue management, Intertemporal price discrimination, Coase conjecture, Perishable goods, Reserve price, Dutch auction

JEL Classification Codes:  C72, D42, D82

Note: 

Published in Journal of Political Economy (June 2011), 119(2): 379-425 [JSTOR]