Managing Strategic Buyers∗

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. ∗We thank Bruno Biais, Stephan Lauermann, Jeroen Swinkels, Rakesh Vohra, the editor and referees for useful comments, and thank the National Science Foundation for financial support. Managing Strategic Buyers August 31, 2010