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Monopoly with Resale

Author

Listed:
  • Giacomo Calzolari

    (Department of Economics, University of Bologna, Italy)

  • Alessandro Pavan

    (Department of Economics, Northwestern University, USA)

Abstract

This paper studies revenue-maximizing mechanisms for a monopolist who expects her buyers to resell in a secondary market. We consider two modes of resale: the first is to a third party who does not participate in the primary market; the second is inter-bidders resale, where the winner in the primary market resells to the losers. We show that resale to third parties is revenue-enhancing for the initial monopolist, whereas inter-bidders resale is revenue-decreasing compared to the case where resale is prohibited. The revenue-maximizing mechanisms in the primary market are obtained by investigating the optimal informational linkage with the secondary market. The results show that to sustain higher resale prices the monopolist may find it optimal (a) to induce stochastic allocations in the primary market, and (b) to design a disclosure policy that optimally controls for the information revealed to the participants in the secondary market. The optimal allocation rule and disclosure policy maximize the expected sum of the bidders’ resale-augmented virtual valuations, taking into account the effect of information disclosure on the price formation process in the secondary market.

Suggested Citation

  • Giacomo Calzolari & Alessandro Pavan, 2003. "Monopoly with Resale," Working Papers 2003.20, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2003.20
    as

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    File URL: http://www.feem.it/userfiles/attach/Publication/NDL2003/NDL2003-020.pdf
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    Other versions of this item:

    • Giacomo Calzolari & Alessandro Pavan, 2004. "Monopoly with Resale," Discussion Papers 1393, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    • Giacomo Calzolari & Alessandro Pavan, 2005. "Monopoly with Resale," Discussion Papers 1405, Northwestern University, Center for Mathematical Studies in Economics and Management Science.

    References listed on IDEAS

    as
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    2. Bulow, Jeremy & Roberts, John, 1989. "The Simple Economics of Optimal Auctions," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1060-1090, October.
    3. Jean-Jacques Laffont & Jean Tirole, 1990. "Adverse Selection and Renegotiation in Procurement," Review of Economic Studies, Oxford University Press, vol. 57(4), pages 597-625.
    4. Philippe Jehiel & Benny Moldovanu, 1999. "Resale Markets and the Assignment of Property Rights," Review of Economic Studies, Oxford University Press, vol. 66(4), pages 971-991.
    5. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
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    10. Michael Schwarz & Konstantin Sonin, 2001. "The Variable Value Environment: Auctions and Actions," Harvard Institute of Economic Research Working Papers 1918, Harvard - Institute of Economic Research.
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    15. Lawrence M. Ausubel & Peter Cramton, 1998. "The Optimality of Being Efficient," Papers of Peter Cramton 98wpoe, University of Maryland, Department of Economics - Peter Cramton, revised 18 Jun 1999.
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Monopoly; information linkage between primary and secondary markets; optimal auction with resale; resale-augmented virtual valuations;

    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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