Optimal Selling Mechanisms for Multiproduct Monopolists: Incentive Compatibility in the Presence of Budget

We demonstrate the existence of an optimal, individually rational, and incentive compatible selling mechanism for a multiproduct monopolist facing a market populated by consumers with budget constraints. Our main contribution is to show via examples and our existence result that, in general, when facing consumers with budget constraints the monopolist is able to maximize profits over the set of individually rational and incentive compatible selling mechanisms only if other goods are available and only if the monopolist’s goods are nonessential relative to other goods. Preliminary draft: July, 1995. Current version: March, 1996. 1Monteiro gratefully acknowledgesthe support and hospitality of the University of Alabama as well as financial support from FAPERJ and CNPq. 2Page gratefully acknowledges financial support from the RGC program at the University of Alabama.