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Optimal auctions with financial externalities

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Author Info
Maasland, E.
Onderstal, S. (Tilburg University, Center for Economic Research)

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Abstract

We construct optimal auctions when bidders face financial externalities. In a Coasean World, in which the seller cannot prevent a perfect resale market, nor withhold the object, the lowest-price all-pay auction is optimal. In a Myersonean World, in which the seller can both prevent resale after the auction, and fully commit to not selling the object, an optimal two-stage mechanism is derived. In the first stage, bidders are asked to pay an entry fee. In the second stage, bidders play the lowest-price all-pay auction with a reserve price. In both worlds, the expected revenue is increasing in the financial externality, and each bidder's expected utility is independent of the financial externality.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 21.

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Date of creation: 2002
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Handle: RePEc:dgr:kubcen:200221

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D44 - Microeconomics - - Market Structure and Pricing - - - Auctions

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jeremy Bulow & Paul Klemperer, 1994. "Auctions vs. Negotiations," NBER Working Papers 4608, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. repec:att:wimass:19199933 is not listed on IDEAS
  3. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  4. Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-61, March. [Downloadable!] (restricted)
  5. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law & Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  6. Jeremy Bulow & Ming Huang & Paul Klemperer, 1999. "Toeholds and Takeovers," Finance 9903005, EconWPA. [Downloadable!]
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  7. Jehiel, Philippe & Moldovanu, Benny & Stacchetti, Ennio, 1996. "How (Not) to Sell Nuclear Weapons," American Economic Review, American Economic Association, vol. 86(4), pages 814-29, September. [Downloadable!] (restricted)
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  8. Jacob K. Goeree & Emiel Maasland & Sander Onderstal & John L. Turner, 2005. "How (Not) to Raise Money," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 897-926, August.
  9. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September. [Downloadable!] (restricted)
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  10. Bulow, Jeremy & Roberts, John, 1989. "The Simple Economics of Optimal Auctions," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1060-90, October. [Downloadable!] (restricted)
  11. 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. [Downloadable!]
  12. Maskin, Eric & Riley, John, 2000. "Asymmetric Auctions," Review of Economic Studies, Blackwell Publishing, vol. 67(3), pages 413-38, July.
  13. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-57, November. [Downloadable!] (restricted)
  14. McAfee, R Preston & Reny, Philip J, 1992. "Correlated Information and Mechanism Design," Econometrica, Econometric Society, vol. 60(2), pages 395-421, March. [Downloadable!] (restricted)
  15. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-92, June. [Downloadable!] (restricted)
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  16. Maasland, E. & Onderstal, S., 2002. "Auctions with financial externalities," Discussion Paper 22, Tilburg University, Center for Economic Research. [Downloadable!]
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  17. Börgers, Tilman & Dustmann, Christian, 2001. "Strange Bids: Bidding Behaviour in the United Kingdom's Third Generation Spectrum Auction," CEPR Discussion Papers 3072, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  18. Klemperer, Paul, 1998. "Auctions with almost common values: The 'Wallet Game' and its applications," European Economic Review, Elsevier, vol. 42(3-5), pages 757-769, May. [Downloadable!] (restricted)
  19. Engelbrecht-Wiggans, Richard, 1988. "Revenue equivalence in multi-object auctions," Economics Letters, Elsevier, vol. 26(1), pages 15-19. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Lu, Jingfeng, 2006. "When and how to dismantle nuclear weapons," MPRA Paper 935, University Library of Munich, Germany. [Downloadable!]
  2. Maasland, E. & Onderstal, S., 2002. "Auctions with financial externalities," Discussion Paper 22, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
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