Optimal selling mechanisms with crossholdings

Gino Loyola

Review of Economic Design, 2021, vol. 25, issue 1, No 1, 32 pages

Abstract: Abstract We characterize the optimal selling mechanism when bidders have ownership links among them (crossholdings). This mechanism discriminates against bidders who enjoy a value comparative advantage resulting from the extent to which they appropriate their own surplus. It is shown that since crossholdings improve the seller’s ability to selectively extract surplus from bidders, expected seller revenue is increasing with the asymmetry in these stakes. The optimal mechanism is implemented by a hybrid procedure that combines an auction with price preferences and a possible exclusive deal. An alternative negotiation procedure replicates some properties of the optimal one, and revenue-dominates most commonly used auction formats.

Keywords: Optimal auction; Crossholding; Asymmetric auction; Negotiation; Private values (search for similar items in EconPapers)
JEL-codes: C72 D44 D82 G32 G34 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10058-020-00240-5

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