Theoretical Economics, Volume 19, Number 2 ( 2024)

Theoretical Economics 19 (2024), 865–915


Optimal mechanism for the sale of a durable good

Laura Doval, Vasiliki Skreta

Abstract


A buyer wishes to purchase a durable good from a seller who in each period chooses a mechanism under limited commitment. The buyer's value is binary and fully persistent. We show that posted prices implement all equilibrium outcomes of an infinite-horizon, mechanism-selection game. Despite being able to choose mechanisms, the seller can do no better and no worse than if he chose prices in each period, so that he is subject to Coase's conjecture. Our analysis marries insights from information and mechanism design with those from the literature on durable goods. We do so by relying on the revelation principle in Doval and Skreta (2022).

Keywords: Mechanism design, limited commitment, information design, public PBE, posted prices, Coase conjecture

JEL classification: D84, D86

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