We introduce a dynamic mechanism design problem in which the designer wants
to offer for sale an item to an agent, and another item to the same agent at
some point in the future. The agent's joint distribution of valuations for the
two items is known, and the agent knows the valuation for the current item (but
not for the one in the future). The designer seeks to maximize expected
revenue, and the auction must be deterministic, truthful, and ex post
individually rational. The optimum mechanism involves a protocol whereby the
seller elicits the buyer's current valuation, and based on the bid makes two
take-it-or-leave-it offers, one for now and one for the future. We show that
finding the optimum deterministic mechanism in this situation - arguably the
simplest meaningful dynamic mechanism design problem imaginable - is NP-hard.
We also prove several positive results, among them a polynomial linear
programming-based algorithm for the optimum randomized auction (even for many
bidders and periods), and we show strong separations in revenue between
non-adaptive, adaptive, and randomized auctions, even when the valuations in
the two periods are uncorrelated. Finally, for the same problem in an
environment in which contracts cannot be enforced, and thus perfection of
equilibrium is necessary, we show that the optimum randomized mechanism
requires multiple rounds of cheap talk-like interactions