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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. Eliaz, Kfir & Offerman, Theo & Schotter, Andrew, 2008. "Creating competition out of thin air: An experimental study of right-to-choose auctions," Games and Economic Behavior, Elsevier, vol. 62(2), pages 383-416, March.
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  17. Sandro Brusco & Giuseppe Lopomo, 2008. "BUDGET CONSTRAINTS AND DEMAND REDUCTION IN SIMULTANEOUS ASCENDING-BID AUCTIONS -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 56(1), pages 113-142, 03.
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Cited by:
  1. Cramton, Peter & Kwerel, Evan & Rosston, Gregory L. & Skrzypacz, Andrzej, 2010. "Using Spectrum Auctions to Enhance Competition in Wireless Services," Working paper 48, Regulation2point0.
  2. 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.
  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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