Research Note—Optimal Selling in Dynamic Auctions: Adaptation Versus Commitment

Abstract

This paper analyzes optimal selling strategies of a monopolist facing forward-looking patient unit-demand bidders in a sequential auction market. Such a seller faces a fundamental choice between two selling regimes: adaptive selling that involves learning about remaining demand from early prices, and commitment selling that forgoes such learning and makes all selling decisions in the beginning of the game. A model of the game between the seller and the bidders is proposed to characterize the optimal regime choice. The model implies that the relative profitability of the two regimes depends on the expected gains from trade: when the expected gains from trade are low, commitment dominates adaptation, and vice versa.