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Monopoly with resale

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Author Info

  • Giacomo Calzolari
  • Alessandro Pavan

Abstract

This paper studies revenue-maximizing mechanisms for a monopolist who expects her buyers to resell in a secondary market. We consider two modes of resale: the first is to a third party who does not participate in the primary market; the second is inter-bidders resale, where the winner in the primary market resells to the losers. We show that resale to third parties is revenue-enhancing for the initial monopolist, whereas inter-bidders resale is revenue-decreasing compared to the case where resale is prohibited. The revenue-maximizing mechanisms in the primary market are obtained by investigating the optimal informational linkage with the secondary market. The results show that to sustain higher resale prices the monopolist may find it optimal (a) to induce stochastic allocations in the primary market, and (b) to design a disclosure policy that optimally controls for the information revealed to the participants in the secondary market. The optimal allocation rule and disclosure policy maximize the expected sum of the bidders’ resale-augmented virtual valuations, taking into account the effect of information disclosure on the price formation process in the secondary market.

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File URL: http://hdl.handle.net/10.1111/j.1756-2171.2006.tb00020.x
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Bibliographic Info

Article provided by RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 37 (2006)
Issue (Month): 2 (06)
Pages: 362-375

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Handle: RePEc:bla:randje:v:37:y:2006:i:2:p:362-375

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References

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  1. Charles Zhoucheng Zheng, 2002. "Optimal Auction with Resale," Econometrica, Econometric Society, vol. 70(6), pages 2197-2224, November.
  2. Laffont, Jean-Jacques & Tirole, Jean, 1988. "The Dynamics of Incentive Contracts," Econometrica, Econometric Society, vol. 56(5), pages 1153-75, September.
  3. John McMillan, 1994. "Selling Spectrum Rights," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 145-162, Summer.
  4. Jehiel, Philippe & Benny Moldovanu, 1994. "Strategic Non-Participation," Discussion Paper Serie B 287, University of Bonn, Germany.
  5. Lawrence M. Ausubel & Peter Cramton, 1998. "The Optimality of Being Efficient," Papers of Peter Cramton 98wpoe, University of Maryland, Department of Economics - Peter Cramton, revised 18 Jun 1999.
  6. Haile, Philip A., 2003. "Auctions with private uncertainty and resale opportunities," Journal of Economic Theory, Elsevier, vol. 108(1), pages 72-110, January.
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  8. Gupta, Madhurima & Lebrun, Bernard, 1999. "First price auctions with resale," Economics Letters, Elsevier, vol. 64(2), pages 181-185, August.
  9. Roger B. Myerson & Mark A. Satterthwaite, 1981. "Efficient Mechanisms for Bilateral Trading," Discussion Papers 469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Jean-Jacques LAFFONT & Jean TIROLE, 1990. "Adverse Selection and Renegotiation in Procurement," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9005, Université de Lausanne, Faculté des HEC, DEEP.
  11. Jehiel, Phillipe & Moldovanu, Benny, 1997. "Resale Markets and the Assignment of Property Rights," Sonderforschungsbereich 504 Publications 97-05, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  12. John G. Riley & William Samuelson, 1979. "Optimal Auctions," UCLA Economics Working Papers 152, UCLA Department of Economics.
  13. Maskin, Eric & Tirole, Jean, 1990. "The Principal-Agent Relationship with an Informed Principal: The Case of Private Values," Econometrica, Econometric Society, vol. 58(2), pages 379-409, March.
  14. Harris, Milton & Raviv, Artur, 1981. "Allocation Mechanisms and the Design of Auctions," Econometrica, Econometric Society, vol. 49(6), pages 1477-99, November.
  15. Haile,P.A., 1999. "Auctions with resale," Working papers 33, Wisconsin Madison - Social Systems.
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