Monopoly with Resale
AbstractThis paper illustrates the intricacies associated with the design of 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. The main contribution is in showing how revenue-maximizing mechanisms can be designed investigating the optimal informational linkage with the secondary market. To control the price in the resale game, the monopolist must design an allocation rule and a disclosure policy that optimally fashion the beliefs of the participants in the resale market. We show that it is generically impossible to maximize revenue through deterministic selling procedures and disclosing only the decision to trade with a particular buyer. To create the optimal informational linkage, the monopolist may need to induce stochastic allocations and disclose also the price paid in the primary market. The optimal allocation rule and disclosure policy maximize the expected sum of the bidders’ resale-augmented virtual valuations under the constraints imposed by the sequential rationality of the bidders’ offers in the resale game.
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Bibliographic InfoPaper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1393.
Date of creation: Jul 2004
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Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014
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Other versions of this item:
- Giacomo Calzolari & Alessandro Pavan, 2003. "Monopoly with Resale," Working Papers 2003.20, Fondazione Eni Enrico Mattei.
- Giacomo Calzolari & Alessandro Pavan, 2005. "Monopoly with Resale," Discussion Papers 1405, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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