Selling Mechanism Research Articles

Auctions with options to re-auction

A seller has one unit to sell using an English auction mechanism similar to internet auction markets, such as eBay. Bidders appear according to a random arrival process. The seller chooses a reserve price and duration for each auction. If the reserve is not met, the seller passes in the object and conducts another auction with a new, randomly chosen, set of bidders. We distinguish reserves that embody an institutional commitment not to sell below that price, from those that do not. In each case, we find the optimal reserve price and the optimal auction duration. Without price commitment, the equilibrium reserve is too low for allocative efficiency, whereas the optimal reserve with commitment is shown to be too high when the distribution of bidder valuations exhibits an increasing hazard rate. It might even be socially preferable to allow reserve price commitments. With respect to duration, a version of the Diamond paradox afflicts sellers who cannot commit to price; auctions facilitate valuable duration commitments that increase buyer competition and raise expected revenue. With commitment, price posting (equivalent to a zero-length auction) is the dominant selling mechanism.

How to Sell Retaliation in the WTO

We study revenue-maximizing mechanisms for selling retaliation in the WTO. The most interesting feature of this mechanism-design problem is the presence of positive externalities among buyers. We observe that the revenue-maximizing selling mechanisms have the following properties: i) The buyer with the lowest valuation for the good may get the good and the allocation is inefficient. ii) Numerical results suggest that the optimal mechanisms cannot be implemented by an ordinary auction. Moreover, we show that allowing retaliation to be tradable might weaken rather than strengthen the WTO enforcement system.

Designing Internet-Based Selling Mechanisms: Multichannel Market Transparency Strategy

The Internet has transformed the nature of business-to-consumer transaction-making practices in many industries. Sellers now attract customers with innovative Internet-based selling mechanisms that can reveal or conceal market information. We define market transparency as a design dimension for Internet-based selling that involves firm choices about the level of availability and accessibility of information about products and prices. Firms can influence market transparency either by designing and implementing their own Internet-based selling mechanism, or by offering their products through an existing electronic market. We develop an economic model of a monopolist that price discriminates across distribution channels based on their market transparency levels. The model provides normative guidelines for firms to set transparency levels and prices across distribution channels in order to maximize profits. We empirically evaluate airline pricing and market transparency to show the applicability of these guidelines. The evidence suggests that relative prices and transparency levels across the Internet and traditional air travel channels are sub-optimal.

Bundling as an optimal selling mechanism for a multiple-good monopolist

Multiple objects may be sold by posting a schedule consisting of one price for each possible bundle and permitting the buyer to select the price–bundle pair of his choice. We identify conditions that must be satisfied by any price schedule that maximizes revenue within the class of all such schedules. We then provide conditions under which a price schedule maximizes expected revenue within the class of all incentive compatible and individually rational mechanisms in the n -object case. We use these results to characterize environments, mainly distributions of valuations, where bundling is the optimal mechanism in the two and three good cases.

The Choice of Seasoned-equity Selling Mechanism: Theory and Evidence

Extending the Myers and Majluf (1984) framework, we present a model for the choice of seasoned-equity selling mechanism. A sequential pooling equilibrium exists which implies a positive market reaction to certain flotation strategies. We examine the model implications using the market reaction to issues on the Oslo Stock Exchange using the full range of flotation methods. The average market reaction is non-negative across all methods, and significantly positive for both rights offerings and private placements, as predicted. We also show that average long-run abnormal stock returns to OSE issuers are indistinguishable from zero, supporting the market rationality assumption underpinning the flotation game.

A model of competing selling mechanisms

A model where sellers choose sequentially between any two selling mechanisms is studied. With monotonicity and minimum mechanism difference, there exists a unique equilibrium where all sellers choose the mechanism of higher per-seller surplus at a critical number of sellers.

Using bidder asymmetry to increase seller revenue

We construct the optimal selling mechanism in a pure common value environment with two bidders that are not equally well informed. With an optimal mechanism, the seller benefits from bidder asymmetry: her expected revenue increases if the bidder asymmetry increases.

Using bidder asymmetry to increase seller revenue

We construct the optimal selling mechanism in a pure common value environment with two bidders that are not equally well informed. With an optimal mechanism, the seller benefits from bidder asymmetry: her expected revenue increases if the bidder asymmetry increases.

A selling mechanism

For the assignment game, we propose the following selling mechanism: sellers, simultaneously, fix their prices first; then buyers, sequentially, decide which object to buy, if any. The first phase of the game determines the potential prices, while the second phase determines the actual matching. We prove that the set of subgame perfect equilibria in pure strategies in the strong sense of the mechanism coincides with the set of sellers' optimal stable outcomes when buyers use maximal strategies.

Using Bidder Asymmetry to Increase Seller Revenue

This paper considers bidding environments with pure common values, in which bidders are not equally well informed. We construct the optimal selling mechanism and ask how bidder asymmetry affects the seller's expected payoff. With an optimal mechanism, the seller benefits from bidder asymmetry: her expected revenue increases if the bidders are more asymmetrically informed.

Choice of Selling Mechanism at the IPO: the Case of the French Second Market

AbstractThis study examines the choice of flotation mechanism within the framework of the French Second Market. Between 1983 and 1996, a firm that opted for a quotation on the Second Market, had the choice between (i) an auction‐like procedure (there were two variants) and (ii) a fixed‐price introduction procedure. Several interesting results are presented. First, the choice for an auction‐like procedure appears to be positively related to firm valuation uncertainty at the IPO. Second, the likelihood of opting for an auction‐like procedure decreases as the reputation of the investment bank guiding the flotation increases. Third, the likelihood of opting for an auction is increasing in the number of secondary shares sold by venture capitalists and investment banks.

Collusion in Beauty Contests

During the recent sales of UMTS licenses in Europe some countries used auctions while others resorted to so-called Beauty Contests. There seems to be a wide consensus among economists that in these and other contexts like privatisation an auction is the better selling mechanism. However, why exactly an auction should be preferred is unclear. Here we present an argument why beauty contests or negotiations might be dominated by auctions, which is closely linked to the multi dimensionality on issues involved in this process. The important assumption we make is that bidding firms do not know the preferences of the government. As a consequence, during a beauty contest participants are uncertain about the final decision of the government. This uncertainty enables firms to collude.

ESTRUTURA ESTRATÉGICA DE UM SIMPLES MERCADO DE COMPRA E VENDA

We consider the cooperative market game studied in Sotomayor (1999-a), where identical and indivisible items are to be sold by only one seller to potential buyers. Agents' preferences are described by a reservation value and all buyers can buy up to their quota of objects. The buying and selling mechanism is a sealed bid auction. Suhmitted bids determine an interval (...) from where a market-c1earing price can be selected. The price (...), where each choice of (...) and of a matching rule define a different mechanism. Each of these mechanisms induces a non-cooperative game whose strategic structure is then analysed. Under reasonable assumptions we show that these non-cooperative games can be regarded as a competitive process for achieving a cooperative outcome: every equilibrium payoff is a competitive equilibrium for the cooperative market game. Precise answers can be given to the strategic questions raised.

Private versus Public Offerings: Optimal Selling Mechanisms with Adverse Selection

We show how an entrepreneur who wishes to maximize revenue from the sale of securities should structure the sale. We allow the entrepreneur to choose between an Initial Public Offering (IPO) and a private placement. In modelling an IPO we take into account both the issuer's ability to give preferential access to a pool of informed investors, and the value of the issuer's option to adjust the quantity of securities going to the retail market, in response to information received from the pool. We also allow for the possibility of selling directly to the retail market without pregathering information. We show that the source of underpricing comes either directly from participation constraints on the part of investors or from residual adverse selection in the retail market, rather than from the need to provide investors with incentives to reveal information. In contrast with earlier work, our optimal issue method in most cases is not improved by discriminatory pricing. We relate underpricing and the choice of issue method to observable firm-specific parameters. We show that for a wide variety of offerings the institutional practice followed by U.S. underwriters, which grants preferential access to a pool of selected investors, is efficient. We derive the optimal number of investors to include in the pool before setting the issue price. Conditions are also given such that forming a pool is not optimal or such that a public offering is not optimal, thus explaining why some firms will choose private offerings or public offerings with no pregathering of information.

Auction design with a risk averse seller

We consider auctions with a risk averse seller in independent private values environments with risk neutral buyers. We show that for every incentive compatible selling mechanism there exists a mechanism which provides deterministically the same (expected) revenue.

Equivalence of Auctions and Posted Prices

We determine the equilibrium in two transaction mechanisms: auctions and posted prices. Agents choose whether to participate in markets where trades are consummated by auctions or in markets where sellers post prices. We show that the selling mechanisms are practically equivalent. Previous studies have shown that auction markets emerge as a unique evolutionary stable equilibrium when compared to bargaining markets. Posted price markets dominate bargaining markets similarly.Journal of Economic LiteratureClassification Numbers: C78, C73, D44.

Optimal selling mechanisms for multiproduct monopolists: incentive compatibility in the presence of budget constraints

We analyze the nonlinear pricing problem faced by an incomplete information monopolist operating in a market populated by agents with budget constraints. We show that if other goods are available and if the monopolist's goods are nonessential relative to other goods, then there exists an optimal, individually rational, and incentive compatible selling mechanism for the monopolist (Theorem 1). Moreover, we show that a solution to all such nonlinear pricing problems exists if and only if the monopolist's goods are nonessential (Theorem 2). In the absence of nonessentiality, we show that if the monopolist's profit function is independent of quantity (e.g., if all costs are fixed), then an optimal selling mechanism exists (Theorem 3). Finally, we show that if there is reporting (of types by agents) and partial recognition of types (by the monopolist), then an optimal selling mechanism exists, even in the absence of nonessentiality, provided agents' utility functions are affine and continuous in goods (Theorem 4). (C) 1998 Elsevier Science S.A. All rights reserved. JEL classification: C72; D82; D42.

Optimal auctions under collusion of buyers with discrete valuations

The potential seller of an indivisible good faces two potential buyers whose valuations for the good are private information. We derive the optimal selling mechanism under the assumption that the buyers collude both when the valuations are independently distributed and when they are correlated. We find that when the valuations are independent the seller can obtain the same expected revenue as if the buyers behaved noncooperatively; if instend the valuations are correlated then collusion harms the seller. In this latter case, moreover, each buyer’s information at the collusion stage about the other buyer’s valuation turns out to be very relevant for the effectiveness of collusion.

The Allocation of Residual Rights

In this paper we examine the value of the right to design the method of sale of corporate assets. The question we ask is simple - who should have the right to decide how the assets of the firm should be sold? We show that this right is a valuable one and its value comes from recognizing the conflicting incentives of claimants at the time of sale. We characterize the choices of the senior and junior claimants and show that they have distinct preferences on a set of common auction procedures. More importantly, we show that the optimal allocation of the right cannot be independent of the realized values of information at the time of sale. We also show that the firm-value maximization is aided when the law mandates an ascending-bid selling mechanism for sale of indentured corporate assets. Our analysis points out that when the process of disposition of a firm's assets in bankruptcy is disassociated with that of the distribution of cash flows accruing from the sale, the incentive problems that are commonly analyzed in the bankruptcy literature show up in the choice of the selling mechanism. In particular, the choice of a selling mechanism is formally identical to the choice of a risky project.

Colour bands, dominance, and body mass regulation in male zebra finches (Taeniopygia guttata)

The arbitrary assignment of different coloured leg bands to zebra finches (Taeniopygia guttata) has profound effects on mate preference, reproductive success, mortality rates, parental investment a...