| Abstract: |
We study a seller's optimal mechanism for maximizing revenue when the buyer
may present evidence relevant to the buyer's value, or when different types of
buyer have a differential ability to communicate. We introduce a dynamic
bargaining protocol in which the buyer first makes a sequence of concessions
in a cheap talk phase, and then at a time determined by the seller, the buyer
presents evidence to support his previous assertions, and then the seller
makes a take-it-or-leave-it offer. Our main result is that the optimal
mechanism can be implemented as a sequential equilibrium of our dynamic
bargaining protocol. Unlike the optimal mechanism to which the seller can
commit, the equilibrium of the bargaining protocol also provides incentives
for the seller to behave as required. We thereby provide a natural procedure
whereby the seller can optimally price discriminate on the basis of the
buyer's evidence. JEL Code: C78, D82, D83. |