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Optimal auctions with asymmetric financial externalities


  • Lu, Jingfeng


This paper studies optimal auction design with asymmetric linear financial externalities among bidders. When the matrix Γ that relates biddersʼ payoffs to their payments is nonsingular, the payment-related component in the design objective must equal a unique linear combination of its counterparts in bidderʼs payoffs. If all multipliers of the linear combination are nonnegative, a modified Myerson procedure is discovered for deriving the optimal design. If any multiplier is negative, an arbitrarily high value can be achieved for design objective by setting proper fixed transfers to bidders. When the matrix Γ is singular, the unbounded optimum result typically prevails. We applied our method to auctions with cross shareholdings and charity auctions for revenue-maximizing and efficient designs.

Suggested Citation

  • Lu, Jingfeng, 2012. "Optimal auctions with asymmetric financial externalities," Games and Economic Behavior, Elsevier, vol. 74(2), pages 561-575.
  • Handle: RePEc:eee:gamebe:v:74:y:2012:i:2:p:561-575
    DOI: 10.1016/j.geb.2011.08.013

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    References listed on IDEAS

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    Cited by:

    1. Paul Madden & Mario Pezzino, 2013. "Sports League Quality, Broadcaster TV Rights Bids and Wholesale Regulation of Sports Channels," The School of Economics Discussion Paper Series 1304, Economics, The University of Manchester.
    2. Wasser, Cédric, 2013. "Bilateral k+1-price auctions with asymmetric shares and values," Games and Economic Behavior, Elsevier, vol. 82(C), pages 350-368.
    3. Janssen, Maarten & Karamychev, Vladimir, 2016. "Spiteful bidding and gaming in combinatorial clock auctions," Games and Economic Behavior, Elsevier, vol. 100(C), pages 186-207.
    4. Björn Bartling & Tobias Gesche & Nick Netzer, 2017. "Does the absence of human sellers bias bidding behavior in auction experiments?," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 3(1), pages 44-61, July.
    5. Dodonova, Anna & Khoroshilov, Yuri, 2014. "Can preemptive bidding in takeover auctions be socially optimal? Yes it can," The North American Journal of Economics and Finance, Elsevier, vol. 27(C), pages 34-47.
    6. Bartling, Björn & Netzer, Nick, 2016. "An externality-robust auction: Theory and experimental evidence," Games and Economic Behavior, Elsevier, vol. 97(C), pages 186-204.
    7. Janssen, Maarten & Karamychev, Vladimir, 2017. "Raising rivals’ cost in multi-unit auctions," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 473-490.
    8. Maarten Janssen & Vladimir Karamychev, 2013. "Gaming in Combinatorial Clock Auctions," Tinbergen Institute Discussion Papers 13-027/VII, Tinbergen Institute, revised 16 Dec 2013.
    9. Daske, Thomas, 2017. "Externality Assessments, Welfare Judgments, and Mechanism Design," EconStor Preprints 172494, ZBW - German National Library of Economics.

    More about this item


    Auction design; Charity auction; Cross shareholdings; Effective payments; Financial externalities; Payment-coefficient matrix;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design


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