Template-Type: ReDIF-Paper 1.0
Author-Name: Gregory Pavlov
Author-X-Name-First: Gregory
Author-X-Name-Last:  Pavlov
Author-Email: gpavlov@bu.edu
Author-Workplace-Name: Boston University, Department of Economics



Title: Optimal Mechanism for Selling Substitutes

Abstract: We study a problem of a multiproduct monopolist selling substitutable goods to a buyer
with unknown valuations. Under the standard distributional assumptions we find that in
the optimal menu every nontrivial contract delivers some good with certainty. Using
this result we apply control-theoretic tools to the case of two goods and solve a number
of examples. The optimal menus generally have a simple structure and sometimes are
substantially more profitable than the deterministic menus. We also extend the approach
to the case when the buyer desires more than a single unit of the good.

Length:39 pages
Creation-Date: 2006-02
Revision-Date: 
Publication-Status:
File-URL: http://people.bu.edu/gpavlov/substitutes.pdf
File-Format: Application/pdf
File-Function: 
Number: WP2006-014
Classification-JEL:C61; D42; L11
Keywords:Multidimensional screening; Price discrimination; Optimal selling strategies
Handle: RePEc:bos:wpaper:WP2006-014