Optimal Auction Design For Multiple Objects with Externalities
AbstractIn this paper we characterize the optimal allocation mechanism for $N$ objects, (permits), to $I$ potential buyers, (firms). Firms' payoffs depend on their costs, the costs of competitors and on the final allocation of the permits, allowing for externalities, substitutabilities and complementarities. Firms' cost parameter is private information and is independently distributed across firms. Externalities are type dependent. This has two consequences: first, even though the private information of each firm is one dimensional (its cost), an allocation's virtual valuation (the natural generalization of the virtual valuation introduced in (Myerson (1981) depends on the cost parameters of all firms. Second, the "critical" type of each buyer, (the type for which participation constraint binds) is not exogenously given but depends on the particular mechanism selected. This is not as in the papers by Jehiel, Moldovanu and Stacchetti 1996, 2001, and makes the characterization of the optimum intricate, since the objective function is altered. However, the feasibility constraints remain tractable, which makes the use of variational methods possible. A further consequence of having type-dependent externalities, which does not arise in the previous work, is that not only payments, but also the revenue maximizing allocation is different from the optimum derived without taking into account the existence of externalities. Our model captures key features of many important multi-object allocation problems like the allocation of time slots for TV commercials, landing slots in airports, privatization and firm takeovers
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2005 Meeting Papers with number 866.
Date of creation: 2005
Date of revision:
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
Optimal Auctions; Multiple Objects; Externalities; Mechanism Design;
Other versions of this item:
- Vasiliki Skreta, 2005. "Optimal Auction Design for Multiple Objects with Externalities," UCLA Economics Online Papers 345, UCLA Department of Economics.
- Vasiliki Skreta & Nicolas Figueroa, 2004. "Optimal Auction Design For Multiple Objects with Externalities," Econometric Society 2004 Latin American Meetings 287, Econometric Society.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-01 (All new papers)
- NEP-GTH-2005-12-01 (Game Theory)
- NEP-MIC-2005-12-01 (Microeconomics)
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.:
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- Jehiel, Philippe & Moldovanu, Benny, 2006. "Allocative and Informational Externalities in Auctions and Related Mechanisms," CEPR Discussion Papers 5558, C.E.P.R. Discussion Papers.
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- Kumru, Cagri & Yektas, Hadi, 2008. "Optimal Multi-Object Auctions with Risk Averse Buyers," MPRA Paper 7575, University Library of Munich, Germany.
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