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Selling an asset to a competitor

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  • Brocas, Isabelle

Abstract

A seller decides whether to allocate an item among two potential buyers. The seller and buyer 1 interact ex post in such a way that each of them suffers a negative externality if the other possesses the item. We show that the optimal allocation rule favors buyer 2, who does not interact ex post with the seller, and in particular bidder 1 may not obtain the good even if his valuation is highest. The auction is therefore subject to resale. When resale is possible, the seller must distort the original auction. We show that the mechanism depends crucially on the way resale is organized ex post. The seller may decide to always allocate the good to the agent with the highest valuation when rents are fully extracted by an intermediary on the resale market. However, she may resort to a stochastic mechanism when the winner of the primary auction has full bargaining power in the resale stage.

Suggested Citation

  • Brocas, Isabelle, 2013. "Selling an asset to a competitor," European Economic Review, Elsevier, vol. 57(C), pages 39-62.
    • Handle: RePEc:eee:eecrev:v:57:y:2013:i:c:p:39-62
    DOI: 10.1016/j.euroecorev.2012.10.004
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    References listed on IDEAS

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    Cited by:

    1. Luke A. Boosey & Christopher Brown, 2021. "Contests with Network Externalities: Theory & Evidence," Working Papers wp2021_07_02, Department of Economics, Florida State University.

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    More about this item

    Keywords

    Asymmetric auctions; Externalities; Resale; Signaling; Mechanism design;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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