Monopoly Pricing, Optimal Randomization, and Resale

Abstract

We provide a parsimonious and unified explanation for randomized selling mechanisms widely used in practice yet commonly perceived as puzzling. Optimality of randomization in the form of conflation and rationing implies that revenue under market-clearing pricing is nonconcave. Randomization is implementable via opaque pricing and underpricing. Relative to market-clearing pricing, randomization increases the equilibrium quantity and quality of goods sold and, consequently, may increase consumer surplus. For fixed quantities, resale increases consumer surplus. However, resale can decrease the equilibrium quantity and quality of goods sold. Thus, resale prohibition, which always benefits the seller, may also increase consumer surplus.