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Optimal auction design with aftermarket Cournot competition

Author

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  • Chen, Yanlin
  • Hu, Audrey
  • Zhang, Jun

Abstract

We study an optimal information/mechanism design problem for selling an object to a number of asymmetric, privately informed bidders in which the winning bidder competes with a third party under differentiated Cournot competition afterwards. We show how to decompose the problem into two sub-problems: Bayesian persuasion and standard mechanism design. Full disclosure of the winner's marginal cost emerges as the unique optimal information policy, combined with allocating the auctioned object to the bidder with the highest “virtual surplus.” Bidders' signaling incentives increase the seller's expected revenue and lower discriminatory reserve prices in the optimal mechanism, improving ex post efficiency, measured by the probability of no-sale.

Suggested Citation

  • Chen, Yanlin & Hu, Audrey & Zhang, Jun, 2024. "Optimal auction design with aftermarket Cournot competition," Games and Economic Behavior, Elsevier, vol. 145(C), pages 54-65.
    • Handle: RePEc:eee:gamebe:v:145:y:2024:i:c:p:54-65
    DOI: 10.1016/j.geb.2024.02.003
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    More about this item

    Keywords

    Mechanism design; Bayesian persuasion; Auctions; Aftermarket; Cournot competition;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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