Optimal auction design under non-commitment

This paper characterizes revenue maximizing auctions for a …nite horizon version of the standard IV P model of Myerson (1981) for a seller who cannot commit not to propose a new mechanism, if previously chosen ones fail to allocate the object. We show that a revenue maximizing mechanism in the …rst period assigns the good to the buyer with the highest virtual valuation, provided that it is above a buyer-speci…c reserve price. If no buyer obtains the good in the …rst period, the same procedure is repeated in the second period, where virtual valuations are calculated using the posterior distributions and the reserves prices are lower, and so forth, until we reach the last period of the game. This is the …rst paper that characterizes optimal mechanisms in a multi-agent environment where the designer behaves sequentially rationally. The characterization procedure can be applicable to other multi-agent mechanism design problems “with limited commitment.”Keywords: mechanism design, optimal auctions, limited commitment. JEL Classi…cation Codes: C72, D44, D82.