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Optimal selling mechanisms with crossholdings

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  • Gino Loyola

    (University of Chile)

Abstract

We characterize the optimal selling mechanism when bidders have ownership links among them (crossholdings). This mechanism discriminates against bidders who enjoy a value comparative advantage resulting from the extent to which they appropriate their own surplus. It is shown that since crossholdings improve the seller’s ability to selectively extract surplus from bidders, expected seller revenue is increasing with the asymmetry in these stakes. The optimal mechanism is implemented by a hybrid procedure that combines an auction with price preferences and a possible exclusive deal. An alternative negotiation procedure replicates some properties of the optimal one, and revenue-dominates most commonly used auction formats.

Suggested Citation

  • Gino Loyola, 2021. "Optimal selling mechanisms with crossholdings," Review of Economic Design, Springer;Society for Economic Design, vol. 25(1), pages 1-32, June.
    • Handle: RePEc:spr:reecde:v:25:y:2021:i:1:d:10.1007_s10058-020-00240-5
    DOI: 10.1007/s10058-020-00240-5
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    More about this item

    Keywords

    Optimal auction; Crossholding; Asymmetric auction; Negotiation; Private values;
    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
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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