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Auctions with Downstream Interaction

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  • Philippe Jehiel
  • Benny Moldovanu

Abstract

We study auctions for an indivisble object. The outcome of the auction influences the future interaction among agents. The impact of that interaction on agent i is assumed to be a funciton of the agents' valuations. While agent's i valuation is private information to i, other valuations are not observable by i at the time of the auction. We derive equilibrium bidding strategies for second price auctions in which the seller may impose reserve prices or entry fees, and we point out differences between the cases where impacts (which we call externalities) are positive or negative. Finally, we study the effect of reserve prices and entry fees on the seller's revenue.

Suggested Citation

  • Philippe Jehiel & Benny Moldovanu, 1998. "Auctions with Downstream Interaction," Discussion Papers 1243, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    • Handle: RePEc:nwu:cmsems:1243
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    Cited by:

    1. Dirk Alboth & Anat Lerner & Jonathan Shalev, 2001. "Profit Maximizing in Auctions of Public Goods," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 3(4), pages 501-525, October.
    2. Thomas Borek & Stefan Buehler & Armin Schmutzler, 2002. "Weddings with Uncertain Prospects � Mergers under Asymmetric Information," SOI - Working Papers 0213, Socioeconomic Institute - University of Zurich, revised Feb 2004.
    3. Roberto Burguet & Jaume Sempere, "undated". "Trade of Permits for Greenhouse Gas Emissions," Working Papers 350, Barcelona School of Economics.
    4. Marco Pagnozzi, 2007. "Should Speculators Be Welcomed in Auctions?," CSEF Working Papers 176, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    5. Jacob K. Goeree, 2000. "Bidding for the Future," Virginia Economics Online Papers 346, University of Virginia, Department of Economics.
    6. Roberto Burguet & Bilateral, "undated". "Trade of Permits for Greenhouse Emissions," Working Papers 163, Barcelona School of Economics.

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