Title

Dynamic Revenue Maximization: A Continuous Time Approach

Document Type

Discussion Paper

Publication Date

7-1-2014

CFDP Number

1953R2

CFDP Revision Date

2015-01-01

CFDP Pages

45

Abstract

We characterize the revenue-maximizing mechanism for time separable allocation problems in continuous time. The valuation of each agent is private information and changes over time. At the time of contracting every agent privately observes his initial type which influences the evolution of his valuation process. The leading example is the repeated sales of a good or a service. We derive the optimal dynamic mechanism, analyze its qualitative structure and frequently derive its closed form solution. This enables us to compare the distortion in various settings. In particular, we discuss the cases where the type of each agent follows an arithmetic or geometric Brownian motion or a mean reverting process. We show that depending on the nature of the private information the distortion might increase or decrease over time.

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