An Optimal Auction with Identity-Dependent Externalities

Hector Chade and Jorge Aseff ()

Working Papers from Department of Economics, W. P. Carey School of Business, Arizona State University

Abstract: We analyze the problem of a seller who has multiple units of a good and faces a set of buyers with unit demands, private information, and identity-dependent externalities. We derive the seller's optimal mechanism and characterize its main properties. As an application of the model, we consider the problem of a shopping center's developer who wants to sell its stores to a set of potential firms whose willingness to pay depend on the flow of customers that will visit the mall, which is in turn affected by the composition of the firms that locate in the center. We show that a sequential selling procedure commonly used in practice is an optimal mechanism if externalities are sufficiently large.

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Related works:
Journal Article: An optimal auction with identity‐dependent externalities (2008)
Working Paper: An optimal auction with identity-dependent externalities (2004)
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