Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/59652 
Year of Publication: 
2010
Series/Report no.: 
Discussion Paper No. 1517
Publisher: 
Northwestern University, Kellogg School of Management, Center for Mathematical Studies in Economics and Management Science, Evanston, IL
Abstract: 
A budget-constrained buyer wants to purchase items from a shortlisted set. Items are differentiated by observable quality and sellers have private reserve prices for their items. The buyer's problem is to select a subset of maximal quality. Money does not enter the buyer's objective function, but only his constraints. Sellers quote prices strategically, inducing a knapsack game. We derive the Bayesian optimal mechanism for the buyer's problem. We find that simultaneous takeit-or-leave-it offers are optimal. Hence, somewhat surprisingly, ex-post competition is not required to implement optimality. Finally, we discuss the problem in a detail free setting.
Subjects: 
Mechanism Design
Subsidies
Budget
Procurement
Knapsack Problem
JEL: 
D21
D44
D45
D82
Document Type: 
Working Paper

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