Optimal Auctions with Financial Externalities

E. Maasland, A.M. Onderstal

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Abstract

We construct optimal auctions when bidders face financial externalities.In a Coasean World, in which the seller cannot prevent a perfect resale market, nor withhold the object, the lowest-price all-pay auction is optimal.In a Myersonean World, in which the seller can both prevent resale after the auction, and fully commit to not selling the object, an optimal two-stage mechanism is derived.In the first stage, bidders are asked to pay an entry fee.In the second stage, bidders play the lowest-price all-pay auction with a reserve price.In both worlds, the expected revenue is increasing in the financial externality, and each bidder's expected utility is independent of the financial externality.
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages18
Volume2002-21
Publication statusPublished - 2002

Publication series

NameCentER Discussion Paper
Volume2002-21

Keywords

  • Optimal auctions
  • financial externalities
  • lowest-price allpay auction
  • Coasean World
  • Myersonean World

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    Maasland, E., & Onderstal, A. M. (2002). Optimal Auctions with Financial Externalities. (CentER Discussion Paper; Vol. 2002-21). Microeconomics.