Strong Duality for a Multiple-Good Monopolist

Abstract

We characterize optimal mechanisms for the multiple‐good monopoly problem and provide a framework to find them. We show that a mechanism is optimal if and only if a measure µ derived from the buyer's type distribution satisfies certain stochastic dominance conditions. This measure expresses the marginal change in the seller's revenue under marginal changes in the rent paid to subsets of buyer types. As a corollary, we characterize the optimality of grand‐bundling mechanisms, strengthening several results in the literature, where only sufficient optimality conditions have been derived. As an application, we show that the optimal mechanism for n independent uniform items each supported on [c,c,+1] is a grand‐bundling mechanism, as long as c is sufficiently large, extending Pavlov's result for two items Pavlov, 2011. At the same time, our characterization also implies that, for all c and for all sufficiently large n, the optimal mechanism for n independent uniform items supported on [c,c+1] is not a grand‐bundling mechanism.