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How do selling mechanisms affect profits, surplus, capacity and prices with unknown demand?
Author(s) -
Hummel Patrick
Publication year - 2018
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12317
Subject(s) - microeconomics , economics , reservation price , price mechanism , mechanism (biology) , revenue equivalence , homogeneous , common value auction , auction theory , market price , philosophy , physics , epistemology , thermodynamics
I analyze a model in which a seller wishes to sell multiple homogeneous goods to a large group of buyers with unknown demand. The seller may either sell objects via a posted‐price mechanism, a discriminatory‐price auction, a uniform‐price auction, their open‐bid analogs, or a revelation mechanism in which the seller first asks all potential buyers to report their valuations and then sets a reserve price. I show that the revelation mechanism leads to the greatest profits, the auction mechanisms result in identical expected profits and the posted‐price mechanism results in the smallest profits. However, the more profitable mechanisms impose stronger informational requirements that may make these mechanisms infeasible in practice, and the posted‐price mechanism also results in the greatest total surplus. I also find the seller chooses a lower capacity and reserve price in an auction than in the posted‐price mechanism.