Selling an asset to a competitor

Isabelle Brocas

European Economic Review, 2013, vol. 57, issue C, 39-62

Abstract: A seller decides whether to allocate an item among two potential buyers. The seller and buyer 1 interact ex post in such a way that each of them suffers a negative externality if the other possesses the item. We show that the optimal allocation rule favors buyer 2, who does not interact ex post with the seller, and in particular bidder 1 may not obtain the good even if his valuation is highest. The auction is therefore subject to resale. When resale is possible, the seller must distort the original auction. We show that the mechanism depends crucially on the way resale is organized ex post. The seller may decide to always allocate the good to the agent with the highest valuation when rents are fully extracted by an intermediary on the resale market. However, she may resort to a stochastic mechanism when the winner of the primary auction has full bargaining power in the resale stage.

Keywords: Asymmetric auctions; Externalities; Resale; Signaling; Mechanism design (search for similar items in EconPapers)
JEL-codes: D44 D62 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:57:y:2013:i:c:p:39-62

DOI: 10.1016/j.euroecorev.2012.10.004

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