Competing Mechanisms

The recent literature on competing mechanisms has devoted a lot of effort at understanding a very complex and abstract issue. In particular, an agent’s type in a competitive environment is hard to conceptualize because it depends on information the agent has about what is going on in the rest of the market. This paper explains why this is such an important practical problem and illustrates how the literature has ’solved’ it. There is a very subtle and ingenious technique called click stream pricing that many websites use when they make price offers to consumers. You can probably find an example pretty easily for yourself, however the last time I tried I found at quote for a desktop computer on Amazon. The price was $689 (with free shipping). You can see offer (which probably looks like an offer you have seen many times before). From the point of view of this paper, the interesting thing about this figure is the little check box below the “Add to Cart” button which offers to add a 2 year warranty for my computer to the cart at a price of $77.99. Checking it, then clicking on the cart button brought up a breakdown of the price, including the 2-year warranty. Thanks to Li Hao for his comments.