a 2nd best solution to the informational asymmetry of private values is given by offering buyers a menu of contracts and the choice of contracts separates buyers into high and low values. the mechanism design of such second degree price discrimination apparently turns out to be really old, long before game theory. this is a quote (translated I presume) from 1844 by Dupuit, a Belgian railroad engineer:
"It is not because of a few thousand francs which would have to be spent to put a roof over the third class carriages or to upholster the third class seats that some company or other has open carriages with wooden benches... What the company is trying to do is to prevent the passengers who can pay the second class fare from traveling third class; it hits the poor not because it wants to hurt them, but to frighten the rich... And it is again for the same reason that the companies, having proved almost cruel to third class passengers and mean to second class passengers, become lavish in dealing with first class passengers. Having refused the poor what is necessary, they give the rich what is superfluous."
Incentive compatibility constraints beautifully explained. Rob the lowest value customer of all reservation utility and give informational rents to the higher types.
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