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An Optimal Auction with Identity-Dependent Externalities

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We analyze the problem of a seller who has multiple units of a good and faces a set of buyers with unit demands, private information, and identity-dependent externalities. We derive the seller's optimal mechanism and characterize its main properties. As an application of the model, we consider the problem of a shopping center's developer who wants to sell its stores to a set of potential firms whose willingness to pay depend on the flow of customers that will visit the mall, which is in turn affected by the composition of the firms that locate in the center. We show that a sequential selling procedure commonly used in practice is an optimal mechanism if externalities are sufficiently large.

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  • Hector Chade & Jorge Aseff, "undated". "An Optimal Auction with Identity-Dependent Externalities," Working Papers 2133477, Department of Economics, W. P. Carey School of Business, Arizona State University.
    • Handle: RePEc:asu:wpaper:2133477
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    1. Jehiel, Philippe & Moldovanu, Benny & Stacchetti, Ennio, 1996. "How (Not) to Sell Nuclear Weapons," American Economic Review, American Economic Association, vol. 86(4), pages 814-829, September.
    2. Jehiel, Philippe & Moldovanu, Benny, 2001. "Efficient Design with Interdependent Valuations," Econometrica, Econometric Society, vol. 69(5), pages 1237-1259, September.
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    4. Nicolas Figueroa & Vasiliki Skreta, 2006. "The Role of Outside Options in Auction Design," Levine's Bibliography 321307000000000140, UCLA Department of Economics.
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    Cited by:

    1. Nicolas Figueroa & Vasiliki Skreta, 2006. "The Role of Outside Options in Auction Design," Levine's Bibliography 321307000000000140, UCLA Department of Economics.
    2. Bettina Klose & Dan Kovenock, 2015. "The all-pay auction with complete information and identity-dependent externalities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 59(1), pages 1-19, May.
    3. Martimort, David & Pouyet, Jerome, 2022. "Why Is Exclusivity in Broadcasting Rights Prevalent and Why Does Simple Regulation Fail?," CEPR Discussion Papers 17446, C.E.P.R. Discussion Papers.
    4. Abdul Quadir, 2019. "Single Object Auctions with Externalities: A Tractable Model," The Japanese Economic Review, Springer, vol. 70(4), pages 479-496, December.
    5. David P. Brown & Andrew Eckert, 2020. "Imperfect Competition in Electricity Markets with Renewable Generation: The Role of Renewable Compensation Policies," The Energy Journal, , vol. 41(4), pages 61-88, July.
    6. Brocas, Isabelle, 2014. "Countervailing incentives in allocation mechanisms with type-dependent externalities," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 22-33.
    7. Baik, Kyung Hwan & Jung, Hanjoon Michael, 2021. "Contests with multiple alternative prizes: Public-good/bad prizes and externalities," Journal of Mathematical Economics, Elsevier, vol. 92(C), pages 103-116.
    8. Yixin Lu & Alok Gupta & Wolfgang Ketter & Eric van Heck, 2019. "Information Transparency in Business-to-Business Auction Markets: The Role of Winner Identity Disclosure," Management Science, INFORMS, vol. 65(9), pages 4261-4279, September.
    9. Gino Loyola, 2021. "Optimal selling mechanisms with crossholdings," Review of Economic Design, Springer;Society for Economic Design, vol. 25(1), pages 1-32, June.
    10. Dimitry Rtischev, 2009. "Licensing of a lower-cost production process to an asymmetric Cournot duopoly," Gakushuin Economic Papers, Gakushuin University, Faculty of Economics, vol. 45(4), pages 325-336.
    11. Laurent Lamy, 2007. "Contingent Auctions with Allocative Externalities: Vickrey vs. the Ausubel-Milgrom Proxy Auction," 2007 Meeting Papers 427, Society for Economic Dynamics.
    12. Isabelle Brocas, 2013. "Optimal allocation mechanisms with type-dependent negative externalities," Theory and Decision, Springer, vol. 75(3), pages 359-387, September.
    13. Brocas, Isabelle, 2013. "Selling an asset to a competitor," European Economic Review, Elsevier, vol. 57(C), pages 39-62.
    14. Chulyoung Kim & Sang-Hyun Kim & Jinhyuk Lee & Jaeok Park, 2023. "Auctions with Externalities: An Experimental Study," Working papers 2023rwp-214, Yonsei University, Yonsei Economics Research Institute.
    15. Brown, David P., 2018. "The effect of subsidized entry on capacity auctions and the long-run resource adequacy of electricity markets," Energy Economics, Elsevier, vol. 70(C), pages 205-232.
    16. Luke A. Boosey & Christopher Brown, 2021. "Contests with Network Externalities: Theory & Evidence," Working Papers wp2021_07_02, Department of Economics, Florida State University.
    17. Hemant K. Bhargava & Gergely Csapó & Rudolf Müller, 2020. "On Optimal Auctions for Mixing Exclusive and Shared Matching in Platforms," Management Science, INFORMS, vol. 66(6), pages 2653-2676, June.
    18. Burkett, Justin, 2018. "Information disclosure in auctions with downstream competition," Economics Letters, Elsevier, vol. 163(C), pages 22-26.
    19. Alexandre Belloni & Changrong Deng & Saša Pekeč, 2017. "Mechanism and Network Design with Private Negative Externalities," Operations Research, INFORMS, vol. 65(3), pages 577-594, June.
    20. David Lagziel & Lotem Ikan, 2023. "The Indoctrination Game," Working Papers 2304, Ben-Gurion University of the Negev, Department of Economics.
    21. Chen, Bo & Potipiti, Tanapong, 2010. "Optimal selling mechanisms with countervailing positive externalities and an application to tradable retaliation in the WTO," Journal of Mathematical Economics, Elsevier, vol. 46(5), pages 825-843, September.
    22. Aner Sela & Amit Yeshayahu, 2022. "Contests with identity-dependent externalities," Working Papers 2203, Ben-Gurion University of the Negev, Department of Economics.
    23. SHINOZAKI, Hiroki, 2023. "Efficiency and strategy-proofness in object allocation problems with payments: Externalities with income effects," Discussion paper series HIAS-E-135, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    24. Pallavi Pal, 2023. "Sponsored Search Auction and the Revenue- Maximizing Number of Ads per Page," CESifo Working Paper Series 10299, CESifo.
    25. Nicolás Figueroa & Vasiliki Skreta, 2011. "Optimal allocation mechanisms with single-dimensional private information," Review of Economic Design, Springer;Society for Economic Design, vol. 15(3), pages 213-243, September.

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    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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