COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 1684R

Managing Strategic Buyers

Johannes Hörner and Larry Samuelson

November 2008
Revised September 2010

We consider the problem of a monopolist who must sell her inventory before some deadline, facing n buyers with independent private values. The monopolist posts prices but has no commitment power. The seller faces a basic trade-off between imperfect price discrimination and maintaining an effective reserve price. When there is only one unit and only a few buyers, the seller essentially posts unacceptable prices up to the very end, at which point prices collapse in a series of jumps to a "reserve price" that exceeds marginal cost. When there are many buyers, the seller abandons this reserve price in order to more effectively screen buyers. Her optimal policy then replicates a Dutch auction, with prices decreasing continuously over time.

Keywords: Revenue management, Intertemporal price discrimination, Coase conjecture, Perishable goods, Reserve price, Dutch auction

JEL Classification: C72, D42, D82