Optimal mechanism design with resale via bargaining

Jun Zhang () and Ruqu Wang

Journal of Economic Theory, 2013, vol. 148, issue 5, 2096-2123

Abstract: In this paper, we examine the optimal mechanism design of selling an indivisible object to one regular buyer and one publicly known buyer, where inter-buyer resale cannot be prohibited. The resale market is modeled as a stochastic ultimatum bargaining game between the two buyers. We fully characterize an optimal mechanism under general conditions. Surprisingly, in this optimal mechanism, the seller never allocates the object to the regular buyer regardless of his bargaining power in the resale market. The seller sells only to the publicly known buyer, and reveals no additional information to the resale market. The possibility of resale causes the seller to sometimes hold back the object, which under our setup is never optimal if resale is prohibited. We find that the sellerʼs revenue is increasing in the publicly known buyerʼs bargaining power in the resale market. When the publicly known buyer has full bargaining power, Myersonʼs optimal revenue is achieved; when the publicly known buyer has no bargaining power, a conditionally efficient mechanism prevails.

Keywords: Auctions; Mechanism design; Resale; Bargaining power (search for similar items in EconPapers)
JEL-codes: C72 D44 D82 D83 L12 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:148:y:2013:i:5:p:2096-2123

DOI: 10.1016/j.jet.2013.07.013

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