Optimal Complementary Auctions

Martin Cripps and Norman Ireland

Bulletin of Economic Research, 2001, vol. 53, issue 2, 81-100

Abstract: This paper considers the situation where two products are sold by the same seller, but to disjoint sets of potential buyers. Externalities may arise from each market outcome to the other. The paper examines the nature of the seller's optimal mechanism, and, for example in the case of positive externalities, it is shown that the allocation decision in either market depends on the highest types in both markets. The optimal mechanism can be implemented by an indirect mechanism that essentially charges winning bidders for the value of their externalities. The analysis is applied to the sale of public sector franchises including exploration and development rights for oil and gas tracts. Copyright 2001 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Date: 2001
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