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Seminarios académicos y conferencias

Gabriel Weintraub, Stanford GSB

"The Scope of Sequential Screening with Ex-Post Participation Constraints"

23 Octubre 2018 - 17:00

Sala 209, Facultad de Ciencias Económicas y Administrativas UC

Abstract: We study the classic sequential screening problem when a revenue-maximizing seller is required to satisfy buyers’ ex-post participation constraints. Leading examples are online shopping and online display advertising. In the former often buyers can return purchased items at low or no cost. In the latter publishers frequently cannot use up-front fees and instead use transaction-contingent fees. We consider a single-buyer two-period mechanism design formulation of the seller’s problem as introduced by Courty and Li (2000), but we add ex-post participation constraints. Initially, the buyer privately learns partial information about her valuation, for example its mean. Later, the buyer learns her actual valuation. We mostly focus on a model with binary interim types and continuum ex-post values. We establish when the optimal selling mechanism is static (buyers are not screened according to their interim types) or sequential (buyers are screened), and obtain a full characterization of such contracts. In our main result, we derive an intuitive necessary and sufficient condition for the optimality of the static contract. We then show that when this condition fails, a sequential contract that randomizes the allocation of the low type buyer and gives a deterministic allocation to the high type buyer is optimal. Our results provide insights on when sequential contracts increase revenues and when running a single `grand’ auction instead is preferred.