American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Optimal Pricing Mechanisms with Unknown Demand
American Economic Review
(pp. 509–529)
Abstract
The standard profit-maximizing multiunit auction intersects the submitted demand curve with a preset reservation supply curve, which is determined using the distribution from which the buyers' valuations are drawn. However, when this distribution is unknown, a preset supply curve cannot maximize monopoly profits. The optimal pricing mechanism in this situation sets a price for each buyer on the basis of the demand distribution inferred statistically from other buyers' bids. The resulting profit converges to the optimal monopoly profit with known demand as the number of buyers goes to infinity, and convergence can be substantially faster than with sequential price experimentation.Citation
Segal, Ilya. 2003. "Optimal Pricing Mechanisms with Unknown Demand ." American Economic Review 93 (3): 509–529. DOI: 10.1257/000282803322156963JEL Classification
- D42 Market Structure and Pricing: Monopoly
- D44 Auctions
- D82 Asymmetric and Private Information; Mechanism Design
- L12 Monopoly; Monopolization Strategies