Optimal auctions with financial externalities

Emiel Maasland () and Sander Onderstal ()

No 21, Discussion Paper from Tilburg University, Center for Economic Research

Abstract: We construct optimal auctions when bidders face financial externalities. In a Coasean World, in which the seller cannot prevent a perfect resale market, nor withhold the object, the lowest-price all-pay auction is optimal. In a Myersonean World, in which the seller can both prevent resale after the auction, and fully commit to not selling the object, an optimal two-stage mechanism is derived. In the first stage, bidders are asked to pay an entry fee. In the second stage, bidders play the lowest-price all-pay auction with a reserve price. In both worlds, the expected revenue is increasing in the financial externality, and each bidder's expected utility is independent of the financial externality.

JEL-codes: D44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic
Date: 2002
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