Optimal complementary auctions
Abstract
This paper considers the situation where two products are sold by the same seller, but to disjoint sets of potential buyers. Externalities may arise from each market outcome to the other. The paper examines the nature of the seller's optimal mechanism, and, for example in the case of positive externalities, it is shown that the allocation decision in either market depends on the highest types in both markets. The optimal mechanism can be implemented by an indirect mechanism that essentially charges winning bidders for the value of their externalities. The analysis is applied to the sale of public sector franchises including exploration and development rights for oil and gas tracts.Download Info
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Paper provided by University College London in its series Open Access publications from University College London with number http://discovery.ucl.ac.uk/16383/.Length:
Date of creation: Apr 2001
Date of revision:
Publication status: Published in Bulletin of Economic Research (2001-04) v.53, p.81-100
Handle: RePEc:ner:ucllon:http://discovery.ucl.ac.uk/16383/
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Web page: http://www.ucl.ac.uk
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- Adams, William James & Yellen, Janet L, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, MIT Press, vol. 90(3), pages 475-98, August.
- McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
- Cripps, Martin & Ireland, Norman, 1994. "The Design of Auctions and Tenders with Quality Thresholds: The Symmetric Case," Economic Journal, Royal Economic Society, vol. 104(423), pages 316-26, March.
- R. Preston McAfee & John McMillan, 1986. "Bidding for Contracts: A Principal-Agent Analysis," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 326-338, Autumn.
- Lewbel, Arthur, 1985. "Bundling of substitutes or complements," International Journal of Industrial Organization, Elsevier, vol. 3(1), pages 101-107, March.
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