Two-stage auction and subscription pricing for awarding monopoly franchises

Hung-po Chao ()

Journal of Regulatory Economics, 2015, vol. 47, issue 3, 219-238

Abstract: This paper examines an efficient market organization for awarding monopoly franchises to assure investment efficiency and revenue sufficiency under conditions of increasing returns. A two-stage auction design achieves ex ante and ex post efficiency by ensuring that the firm with the best technology will be selected, and after winning, the firm will operate at the least cost and price at the marginal cost. Priority-differentiated subscription service fosters self-revelation of demand functions and facilitates fixed cost recovery. With known demand functions, a linear subscription price schedule based on the beneficiary-pay principle achieves efficient fixed cost recovery. With unknown demand functions, a two-part subscription price menu based on nonlinear Ramsey pricing attains an incentive-compatible, second-best result. Copyright Springer Science+Business Media New York 2015

Keywords: Franchise bidding; Multi-dimensional auction; Two-stage auction; Subscription pricing; Increasing returns; Fixed cost recovery; C7; D2; D4; D8; L1 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/s11149-015-9273-3

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