IDEAS home Printed from https://ideas.repec.org/p/red/sed005/866.html
   My bibliography  Save this paper

Optimal Auction Design For Multiple Objects with Externalities

Author

Listed:
  • Vasiliki Skreta
  • Nicolas Figueroa

Abstract

In this paper we characterize the optimal allocation mechanism for $N$ objects, (permits), to $I$ potential buyers, (firms). Firms' payoffs depend on their costs, the costs of competitors and on the final allocation of the permits, allowing for externalities, substitutabilities and complementarities. Firms' cost parameter is private information and is independently distributed across firms. Externalities are type dependent. This has two consequences: first, even though the private information of each firm is one dimensional (its cost), an allocation's virtual valuation (the natural generalization of the virtual valuation introduced in (Myerson (1981) depends on the cost parameters of all firms. Second, the "critical" type of each buyer, (the type for which participation constraint binds) is not exogenously given but depends on the particular mechanism selected. This is not as in the papers by Jehiel, Moldovanu and Stacchetti 1996, 2001, and makes the characterization of the optimum intricate, since the objective function is altered. However, the feasibility constraints remain tractable, which makes the use of variational methods possible. A further consequence of having type-dependent externalities, which does not arise in the previous work, is that not only payments, but also the revenue maximizing allocation is different from the optimum derived without taking into account the existence of externalities. Our model captures key features of many important multi-object allocation problems like the allocation of time slots for TV commercials, landing slots in airports, privatization and firm takeovers
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Vasiliki Skreta & Nicolas Figueroa, 2005. "Optimal Auction Design For Multiple Objects with Externalities," 2005 Meeting Papers 866, Society for Economic Dynamics.
  • Handle: RePEc:red:sed005:866
    as

    Download full text from publisher

    File URL: http://www.econ.ucla.edu/skreta/research.htm
    File Function: main text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation for Research in Economics, Yale University.
    2. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    3. 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.
    4. Mark Armstrong, 2000. "Optimal Multi-Object Auctions," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 455-481.
    5. Dana, James Jr. & Spier, Kathryn E., 1994. "Designing a private industry : Government auctions with endogenous market structure," Journal of Public Economics, Elsevier, vol. 53(1), pages 127-147, January.
    6. Gale, Ian, 1990. "A multiple-object auction with superadditive values," Economics Letters, Elsevier, vol. 34(4), pages 323-328, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kumru, Cagri & Yektas, Hadi, 2008. "Optimal Multi-Object Auctions with Risk Averse Buyers," MPRA Paper 7575, University Library of Munich, Germany.
    2. Jehiel, Philippe & Moldovanu, Benny, 2005. "Allocative and Informational Externalities in Auctions and Related Mechanisms," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 142, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    3. Todd R. Kaplan & Shmuel Zamir, 2014. "Advances in Auctions," Discussion Papers 1405, University of Exeter, Department of Economics.
    4. Espinola-Arredondo, Ana, 2008. "Green auctions: A biodiversity study of mechanism design with externalities," Ecological Economics, Elsevier, vol. 67(2), pages 175-183, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nicolas Figueroa & Vasiliki Skreta, 2006. "The Role of Outside Options in Auction Design," Levine's Bibliography 321307000000000140, UCLA Department of Economics.
    2. 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.
    3. Veronika Grimm, 2004. "On Procurement Auctions Of Complementary Goods," Working Papers. Serie AD 2004-02, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    4. Philippe Jehiel & Benny Moldovanu, 2005. "Allocative and Informational Externalities in Auctions and Related Mechanisms," Levine's Bibliography 784828000000000490, UCLA Department of Economics.
    5. Hongjun Zhong, 2002. "postbid market interaction and auction choice," Microeconomics 0210002, University Library of Munich, Germany.
    6. Domenico Menicucci, 2003. "Optimal two-object auctions with synergies," Review of Economic Design, Springer;Society for Economic Design, vol. 8(2), pages 143-164, October.
    7. Rey, Patrick & Salant, David, 2017. "Allocating essential inputs," TSE Working Papers 17-820, Toulouse School of Economics (TSE), revised Jun 2019.
    8. Veronika Grimm, 2007. "Sequential versus Bundle Auctions for Recurring Procurement," Journal of Economics, Springer, vol. 90(1), pages 1-27, January.
    9. Xu Lang, 2022. "Reduced-Form Allocations with Complementarity: A 2-Person Case," Papers 2202.06245, arXiv.org, revised Feb 2022.
    10. Xu Lang, 2022. "Reduced-form budget allocation with multiple public alternatives," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 59(2), pages 335-359, August.
    11. Stefano Galavotti, 2014. "Reducing Inefficiency in Public Good Provision Through Linking," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(3), pages 427-466, June.
    12. Schmitz, Patrick W., 2002. "On Monopolistic Licensing Strategies under Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 106(1), pages 177-189, September.
    13. Loyola, Gino, 2012. "Optimal and efficient takeover contests with toeholds," Journal of Financial Intermediation, Elsevier, vol. 21(2), pages 203-216.
    14. Walter Beckert, 2004. "Dynamic Monopolies with Stochastic Demand," Birkbeck Working Papers in Economics and Finance 0404, Birkbeck, Department of Economics, Mathematics & Statistics.
    15. repec:pit:wpaper:202 is not listed on IDEAS
    16. Jorge Aseff & Hector Chade, 2008. "An optimal auction with identity‐dependent externalities," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 731-746, September.
    17. Hernandez-Chanto, Allan & Fioriti, Andres, 2019. "Bidding securities in projects with negative externalities," European Economic Review, Elsevier, vol. 118(C), pages 14-36.
    18. 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.
    19. Song, Yangwei, 2018. "Efficient Implementation with Interdependent Valuations and Maxmin Agents," Rationality and Competition Discussion Paper Series 92, CRC TRR 190 Rationality and Competition.
    20. Alexandre Belloni & Changrong Deng & Saša Pekeč, 2017. "Mechanism and Network Design with Private Negative Externalities," Operations Research, INFORMS, vol. 65(3), pages 577-594, June.
    21. Anthony M. Kwasnica & John O. Ledyard & Dave Porter & Christine DeMartini, 2005. "A New and Improved Design for Multiobject Iterative Auctions," Management Science, INFORMS, vol. 51(3), pages 419-434, March.

    More about this item

    Keywords

    Optimal Auctions; Multiple Objects; Externalities; Mechanism Design;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed005:866. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.