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Optimal mechanism design with resale via bargaining

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  • Zhang, Jun
  • Wang, Ruqu

Abstract

In this paper, we examine the optimal mechanism design of selling an indivisible object to one regular buyer and one publicly known buyer, where inter-buyer resale cannot be prohibited. The resale market is modeled as a stochastic ultimatum bargaining game between the two buyers. We fully characterize an optimal mechanism under general conditions. Surprisingly, in this optimal mechanism, the seller never allocates the object to the regular buyer regardless of his bargaining power in the resale market. The seller sells only to the publicly known buyer, and reveals no additional information to the resale market. The possibility of resale causes the seller to sometimes hold back the object, which under our setup is never optimal if resale is prohibited. We find that the sellerʼs revenue is increasing in the publicly known buyerʼs bargaining power in the resale market. When the publicly known buyer has full bargaining power, Myersonʼs optimal revenue is achieved; when the publicly known buyer has no bargaining power, a conditionally efficient mechanism prevails.

Suggested Citation

  • Zhang, Jun & Wang, Ruqu, 2013. "Optimal mechanism design with resale via bargaining," Journal of Economic Theory, Elsevier, vol. 148(5), pages 2096-2123.
    • Handle: RePEc:eee:jetheo:v:148:y:2013:i:5:p:2096-2123
    DOI: 10.1016/j.jet.2013.07.013
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    Citations

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    Cited by:

    1. Loertscher, Simon & Marx, Leslie M., 2017. "Auctions with bid credits and resale," International Journal of Industrial Organization, Elsevier, vol. 55(C), pages 58-90.
    2. Weiye Cheny, 2018. "Optimal Mechanism Design with Resale: An Ex-Ante Price Default Model," Discussion Papers in Economics and Business 18-24, Osaka University, Graduate School of Economics.
    3. Lorentziadis, Panos L., 2016. "Optimal bidding in auctions from a game theory perspective," European Journal of Operational Research, Elsevier, vol. 248(2), pages 347-371.
    4. Piotr Dworczak, 2020. "Mechanism Design With Aftermarkets: Cutoff Mechanisms," Econometrica, Econometric Society, vol. 88(6), pages 2629-2661, November.
    5. Xiaogang Che & Tilman Klumpp, 2023. "Auctions versus sequential mechanisms when resale is allowed," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(4), pages 1207-1245, May.
    6. 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.
    7. Lang, Xu, 2016. "Essays in microeconomic theory," Other publications TiSEM 767e79ca-5c15-4a6e-86a5-6, Tilburg University, School of Economics and Management.
    8. Zhang, Jun, 2013. "Revenue maximizing with return policy when buyers have uncertain valuations," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 452-461.
    9. McAdams, David, 2015. "On the benefits of dynamic bidding when participation is costly," Journal of Economic Theory, Elsevier, vol. 157(C), pages 959-972.

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    More about this item

    Keywords

    Auctions; Mechanism design; Resale; Bargaining power;
    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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