Search mechanisms (Q1098748)

Extending the Revelation Principle to a case in which it is costly for the principal to communicate with any agent, we show that there is a sequential direct mechanism that is optimal in the class of all mechanisms. We then apply this result to the problem of a monopsonist seeking to buy an indivisible good from one of a set of possible sellers with unobservable production costs. With costly communication, the monopsonist's optimal procurement mechanism is a combination of reservation-price search and auction.