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The Economics of Contingent Re-auctions

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  • Sandro Brusco
  • Giuseppe Lopomo
  • Leslie M. Marx

Abstract

We consider an auction environment where an object can be sold with usage restrictions that generate benefits to the seller but decrease buyers' valuations. In this environment, sellers such as the FCC have used "contingent re-auctions," offering the restricted object with a reserve price, but re-auctioning it without restrictions if the reserve is not met. We show that contingent re-auctions are generally neither efficient nor optimal for the seller. We propose an alternative "exclusive-buyer mechanism" that can implement the efficient outcome in dominant strategies. In certain environments, parameters can be chosen so the seller's surplus is maximized across all selling procedures. (JEL D44, D82, H82)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mic.3.2.165
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 3 (2011)
Issue (Month): 2 (May)
Pages: 165-93

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Handle: RePEc:aea:aejmic:v:3:y:2011:i:2:p:165-93

Note: DOI: 10.1257/mic.3.2.165
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  1. Laura E. Kodres & Matthew Pritsker, 2002. "A Rational Expectations Model of Financial Contagion," Journal of Finance, American Finance Association, vol. 57(2), pages 769-799, 04.
  2. Freixas, Xavier & Parigi, Bruno M & Rochet, Jean-Charles, 2000. "Systemic Risk, Interbank Relations, and Liquidity Provision by the Central Bank," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 611-38, August.
  3. Calvo, Guillermo A. & Mendoza, Enrique G., 2000. "Rational contagion and the globalization of securities markets," Journal of International Economics, Elsevier, vol. 51(1), pages 79-113, June.
  4. Upper, Christian & Worms, Andreas, 2002. "Estimating Bilateral Exposures in the German Interbank Market: Is there a Danger of Contagion?," Discussion Paper Series 1: Economic Studies 2002,09, Deutsche Bundesbank, Research Centre.
  5. Albert S. Kyle, 2001. "Contagion as a Wealth Effect," Journal of Finance, American Finance Association, vol. 56(4), pages 1401-1440, 08.
  6. Furfine, Craig H, 2003. " Interbank Exposures: Quantifying the Risk of Contagion," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(1), pages 111-28, February.
  7. Garry J. Schinasi & R. Todd Smith, 2000. "Portfolio Diversification, Leverage, and Financial Contagion," IMF Staff Papers, Palgrave Macmillan, vol. 47(2), pages 1.
  8. Rochet, Jean-Charles & Tirole, Jean, 1996. "Interbank Lending and Systemic Risk," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 733-62, November.
  9. Degryse, H.A. & Nguyen, G., 2004. "Interbank Exposures: An Empirical Examination of Systemic Risk in the Belgian Banking System," Discussion Paper 2004-4, Tilburg University, Center for Economic Research.
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Cited by:
  1. Bajari, Patrick & Yeo, Jungwon, 2009. "Auction design and tacit collusion in FCC spectrum auctions," Information Economics and Policy, Elsevier, vol. 21(2), pages 90-100, June.
  2. Cramton, Peter & Kwerel, Evan & Rosston, Gregory L. & Skrzypacz, Andrzej, 2010. "Using Spectrum Auctions to Enhance Competition in Wireless Services," Working paper 48, Regulation2point0.
  3. Gregory Crawford & Evan Kwerel & Jonathan Levy, 2008. "Economics at the FCC: 2007–2008," Review of Industrial Organization, Springer, vol. 33(3), pages 187-210, November.

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