We show that the seller's problem in devising an optimal auction is virtually identical to the monopolist's problem in third-degree price discrimination. More generally, many of the important results and elegant techniques developed in the field of mechanism design can be reinterpreted in the language of standard micro theory. We illustrate this by considering the problem of bilateral exchange with privately known values.

We present a signaling model, based on ideas of Phillip Nelson, in which both the introductory price and the level of directly "uninformative" advertising or other dissipative marketing expenditures are choice variables and may be used as signals for the initially unobservable quality of a newly introduced experience good. Repeat purchases play a crucial role in our model. A second focus of the paper is on illustrating an approach to refining the set of equilibria in signalling games with multiple potential signals.

We show that the seller's problem in devising an optimal auction is virtually identical to the monopolist's problem in third-degree price discrimination. More generally, many of the important results and elegant techniques developed in the field of mechanism design can be reinterpreted in the language of standard micro theory. We illustrate this by considering the problem of bilateral exchange with privately known values.

We present a signaling model, based on ideas of Phillip Nelson, in which both the introductory price and the level of directly "uninformative" advertising or other dissipative marketing expenditures are choice variables and may be used as signals for the initially unobservable quality of a newly introduced experience good. Repeat purchases play a crucial role in our model. A second focus of the paper is on illustrating an approach to refining the set of equilibria in signalling games with multiple potential signals.