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American Economic Journal: Microeconomics: Vol. 1 No. 2 (August 2009)

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Dynamic Revenue Maximization with Heterogeneous Objects: A Mechanism Design Approach

Article Citation

Gershkov, Alex, and Benny Moldovanu. 2009. "Dynamic Revenue Maximization with Heterogeneous Objects: A Mechanism Design Approach." American Economic Journal: Microeconomics, 1(2): 168-98.

DOI: 10.1257/mic.1.2.168

Abstract

We study the revenue-maximizing allocation of several heterogeneous, commonly ranked objects to impatient agents with privately known characteristics who arrive sequentially. There is a deadline after which no more objects can be allocated. We first characterize implementable allocation schemes, and compute the expected revenue for any implementable, deterministic and Markovian allocation policy. The revenue-maximizing policy is obtained by a variational argument which sheds more light on its properties than the usual dynamic programming approach. Finally, we use our main result in order to derive the optimal inventory choice, and explain empirical regularities about pricing in clearance sales. (JEL C61, D21, D82)

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Authors

Gershkov, Alex (U Bonn)
Moldovanu, Benny (U Bonn)

JEL Classifications

C61: Optimization Techniques; Programming Models; Dynamic Analysis
D21: Firm Behavior
D82: Asymmetric and Private Information

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