
Benjamin E. Hermalin
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where
is a constant.
Given a nondecreasing allocation profile, x(·), the seller can choose any t(·) satisfying
(6.2.18) to implement it. She does better the greater is t(·), so it follows she wants τ as
small as possible; that is, equal to u
R
. Hence, as claimed, her expected-payoff-maximizing
mechanism has a transfer function satisfying (6.2.17).
6.2.1.4 The Equilibrium Mechanism and Tariff
Consider, now, the question of the seller’s choice of mechanism to offer.
Two additional points before proceeding. First, it follows from the economic defini-
tion of cost that c(x
0
, β) ≡ 0 ∀β. Second, for the case of a discrete ...