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Monopoly with Resale

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Author Info

  • Giacomo Calzolari

    (Department of Economics, University of Bologna, Italy)

  • Alessandro Pavan

    (Department of Economics, Northwestern University, USA)

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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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2003.20.

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Date of creation: Mar 2003
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Handle: RePEc:fem:femwpa:2003.20

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Keywords: Monopoly; information linkage between primary and secondary markets; optimal auction with resale; resale-augmented virtual valuations;

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References

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  1. 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.
  2. Philippe Jehiel & Benny Moldovanu, 1996. "Strategic Nonparticipation," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 84-98, Spring.
  3. 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.
  4. Zheng, Charles Zhoucheng, 2002. "Optimal Auction with Resale," Staff General Research Papers 12664, Iowa State University, Department of Economics.
  5. Gupta, Madhurima & Lebrun, Bernard, 1999. "First price auctions with resale," Economics Letters, Elsevier, vol. 64(2), pages 181-185, August.
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  7. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-92, June.
  8. Schwarz, Michael & Sonin, Konstantin, 2002. "The Variable Value Environment: Auctions and Actions," CEPR Discussion Papers 3670, C.E.P.R. Discussion Papers.
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  11. Haile, Philip A., 2003. "Auctions with private uncertainty and resale opportunities," Journal of Economic Theory, Elsevier, vol. 108(1), pages 72-110, January.
  12. John McMillan, 1994. "Selling Spectrum Rights," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 145-162, Summer.
  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. Haile,P.A., 1999. "Auctions with resale," Working papers 33, Wisconsin Madison - Social Systems.
  15. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  16. 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.
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