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Optimal Complementary Auctions*
Author(s) -
Cripps Martin,
Ireland Norman
Publication year - 2001
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/1467-8586.00120
Subject(s) - common value auction , externality , microeconomics , economics , outcome (game theory) , market mechanism , mechanism (biology) , value (mathematics) , disjoint sets , price mechanism , strategic dominance , industrial organization , market price , market economy , computer science , philosophy , mathematics , epistemology , combinatorics , machine learning
This paper considers the situation where two products are sold by the same seller, but to disjoint sets of potential buyers. Externalities may arise from each market outcome to the other. The paper examines the nature of the seller’s optimal mechanism, and, for example in the case of positive externalities, it is shown that the allocation decision in either market depends on the highest types in both markets. The optimal mechanism can be implemented by an indirect mechanism that essentially charges winning bidders for the value of their externalities. The analysis is applied to the sale of public sector franchises including exploration and development rights for oil and gas tracts.