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An optimal auction with identity-dependent externalities


  • Jorge Aseff
  • Hector Chade


We analyze the problem of a seller of multiple identical units of a good who faces a set of buyers with unit demands, private information, and identity-dependent externalities. We derive the seller's optimal mechanism and characterize its main properties. We show that the probability that a buyer obtains a unit is an increasing function of the externalities he generates and enjoys. Also, the seller's allocation of the units of the good need not be ex post efficient. As an illustration, we apply the model to the problem faced by a developer of a shopping mall who wants to allocate and price its retail space among anchor and non-anchor stores. We show that a commonly used sequential mechanism is not optimal unless externalities are large enough. Copyright (c) 2008, RAND.

Suggested Citation

  • Jorge Aseff & Hector Chade, 2008. "An optimal auction with identity-dependent externalities," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 731-746.
  • Handle: RePEc:bla:randje:v:39:y:2008:i:3:p:731-746

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    References listed on IDEAS

    1. Jehiel, Philippe & Moldovanu, Benny, 2001. "Efficient Design with Interdependent Valuations," Econometrica, Econometric Society, vol. 69(5), pages 1237-1259, September.
    2. Gopal Das Varma, 2002. "Standard Auctions with Identity-Dependent Externalities," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 689-708, Winter.
    3. Nicolas Figueroa & Vasiliki Skreta, 2006. "The Role of Outside Options in Auction Design," Levine's Bibliography 321307000000000140, UCLA Department of Economics.
    4. Jehiel, Philippe & Moldovanu, Benny & Stacchetti, Ennio, 1996. "How (Not) to Sell Nuclear Weapons," American Economic Review, American Economic Association, vol. 86(4), pages 814-829, September.
    5. Pashigian, B Peter & Gould, Eric D, 1998. "Internalizing Externalities: The Pricing of Space in Shopping Malls," Journal of Law and Economics, University of Chicago Press, vol. 41(1), pages 115-142, April.
    6. Ilya Segal, 1999. "Contracting with Externalities," The Quarterly Journal of Economics, Oxford University Press, vol. 114(2), pages 337-388.
    7. Levin, Jonathan, 1997. "An Optimal Auction for Complements," Games and Economic Behavior, Elsevier, vol. 18(2), pages 176-192, February.
    8. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
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    Cited by:

    1. Nicolas Figueroa & Vasiliki Skreta, 2006. "The Role of Outside Options in Auction Design," Levine's Bibliography 321307000000000140, UCLA Department of Economics.
    2. Bettina Klose & Dan Kovenock, 2015. "The all-pay auction with complete information and identity-dependent externalities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 59(1), pages 1-19, May.
    3. Brocas, Isabelle, 2014. "Countervailing incentives in allocation mechanisms with type-dependent externalities," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 22-33.
    4. Isabelle Brocas, 2013. "Optimal allocation mechanisms with type-dependent negative externalities," Theory and Decision, Springer, vol. 75(3), pages 359-387, September.
    5. Brocas, Isabelle, 2013. "Selling an asset to a competitor," European Economic Review, Elsevier, vol. 57(C), pages 39-62.
    6. Brown, David, 2014. "The Effect of Subsidized Entry on Capacity Auctions and the Long-Run Resource Adequacy of Electricity Markets," Working Papers 2014-7, University of Alberta, Department of Economics.
    7. repec:eee:ecolet:v:163:y:2018:i:c:p:22-26 is not listed on IDEAS
    8. Chen, Bo & Potipiti, Tanapong, 2010. "Optimal selling mechanisms with countervailing positive externalities and an application to tradable retaliation in the WTO," Journal of Mathematical Economics, Elsevier, vol. 46(5), pages 825-843, September.
    9. Rtischev, Dimitry, 2009. "Licensing of a lower-cost production process to an asymmetric Cournot duopoly," MPRA Paper 23017, University Library of Munich, Germany.
    10. Nicolás Figueroa & Vasiliki Skreta, 2011. "Optimal allocation mechanisms with single-dimensional private information," Review of Economic Design, Springer;Society for Economic Design, vol. 15(3), pages 213-243, September.

    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions


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