CFDP 2189R4

Progressive Participation

Author(s): 

Publication Date: August 2019

Revision Date: July 2020November 2020July 2021

Pages: 47

Abstract: 

A single seller faces a sequence of buyers with unit demand. The buyers are forward-looking and long-lived. Each buyer has private information about his arrival time and valuation where the latter evolves according to a geometric Brownian motion. Any incentive-compatible mechanism has to induce truth-telling about the arrival time and the evolution of the valuation. 
 
We establish that the optimal stationary allocation policy can be implemented by a simple posted price. The truth-telling constraint regarding the arrival time can be represented as an optimal stopping problem which determines the first time at which the buyer participates in the mechanism. The optimal mechanism thus induces progressive participation by each buyer: he either participates immediately or at a future random time.

Keywords: 

Dynamic Mechanism Design, Observable Arrival, Unobservable Arrival, Repeated Sales, Interim Incentive Constraints, Interim Participation Constraints, Stopping Problem, Option Value, Progressive Participation

JEL Classification Codes: D44, D82, D83

JEL Classification Codes: D44D82D83

See CFDP Version(s): CFDP 2189CFDP 2189RCFDP 2189R2CFDP 2189R3