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An Optimal Auction with Identity-Dependent Externalities

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Abstract

We analyze the problem of a seller who has multiple units of a good and 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. As an application of the model, we consider the problem of a shopping center's developer who wants to sell its stores to a set of potential firms whose willingness to pay depend on the flow of customers that will visit the mall, which is in turn affected by the composition of the firms that locate in the center. We show that a sequential selling procedure commonly used in practice is an optimal mechanism if externalities are sufficiently large.

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  • Hector Chade & Jorge Aseff, "undated". "An Optimal Auction with Identity-Dependent Externalities," Working Papers 2133477, Department of Economics, W. P. Carey School of Business, Arizona State University.
  • Handle: RePEc:asu:wpaper:2133477
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    References listed on IDEAS

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    1. Levin, Jonathan, 1997. "An Optimal Auction for Complements," Games and Economic Behavior, Elsevier, vol. 18(2), pages 176-192, February.
    2. Jehiel, Philippe & Moldovanu, Benny, 2001. "Efficient Design with Interdependent Valuations," Econometrica, Econometric Society, vol. 69(5), pages 1237-1259, September.
    3. Gopal Das Varma, 2002. "Standard Auctions with Identity-Dependent Externalities," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 689-708, Winter.
    4. Nicolas Figueroa & Vasiliki Skreta, 2006. "The Role of Outside Options in Auction Design," Levine's Bibliography 321307000000000140, UCLA Department of Economics.
    5. 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.
    6. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    7. 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.
    8. Ilya Segal, 1999. "Contracting with Externalities," The Quarterly Journal of Economics, Oxford University Press, vol. 114(2), pages 337-388.
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    Cited by:

    1. 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.
    2. Brocas, Isabelle, 2014. "Countervailing incentives in allocation mechanisms with type-dependent externalities," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 22-33.
    3. Nicolas Figueroa & Vasiliki Skreta, 2006. "The Role of Outside Options in Auction Design," Levine's Bibliography 321307000000000140, UCLA Department of Economics.
    4. 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.
    5. repec:eee:ecolet:v:163:y:2018:i:c:p:22-26 is not listed on IDEAS
    6. Rtischev, Dimitry, 2009. "Licensing of a lower-cost production process to an asymmetric Cournot duopoly," MPRA Paper 23017, University Library of Munich, Germany.
    7. Isabelle Brocas, 2013. "Optimal allocation mechanisms with type-dependent negative externalities," Theory and Decision, Springer, vol. 75(3), pages 359-387, September.
    8. Brocas, Isabelle, 2013. "Selling an asset to a competitor," European Economic Review, Elsevier, vol. 57(C), pages 39-62.
    9. 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.
    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.

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    JEL classification:

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

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