dc.description.abstract |
<p>I characterize optimal long term contracts offered by a monopolist to a buyer whose
private valuation evolves according to a branching process with privately known transition
probability. The optimal contract can be implemented in a simple way, and presents
the buyer with a tradeoff between a high initial fixed fee and low future prices.
In an interaction with a long time horizon, the relationship will terminate prematurely
with probability close to one. Optimal mechanisms are quite different from models
in which the transition probability is known, and the buyer's private information
is his initial valuation. Optimal contracts resemble the structure of term life insurance
contracts, and have features similar to actual interactions between retailers and
suppliers.</p>
|
|