ESSAYS ON DYNAMIC MECHANISM DESIGN

Abstract

The thesis comprises two chapters. In Chapter 1, we study when and how intertemporal bundling arises in optimal dynamic selling mechanisms in a two-period and two-object sequential setting. We find that when the buyer's values of the objects are independent and positively correlated under first-order stochastic dominance (FOSD), separate sales are optimal. However, with negatively correlated values (also under FOSD), the optimal design involves intertemporal bundling. The bundle includes the entire second object and a probabilistic proportion of the first object, making its interim expected value independent of the first-stage type. Chapter 2, "Procurement Design with Stochastic Innovation: A Sequential Double Ironing Approach," examines optimal designs when the supplier's innovation success probability is private. With unobservable innovation success, we develop a sequential ironing method to characterize the optimal design. If innovation success is contractible, the optimal mechanism achieves ex-post efficiency and fully extracts the supplier's surplus.