Optimal Sequential Auctions for Complements

31 May 2003
Dr. Soren Tang Sorensen

In this article NERA Senior Consultant Dr. Sorensen outlines a sequence of optimal auction mechanisms derived in a framework where two complementary objects become available over time.

He finds that with independent revenue-maximizing sellers, the sequence of optimal auctions may allocate the two objects as a bundle either more or less often than is socially efficient. Moreover, each seller imposes a negative externality on the other seller by maximizing own revenue. Consequently, a sequence of coordinated auction mechanisms can increase joint revenue.

Dr. Sorensen concludes that under the joint optimal auction mechanism objects are allocated as a bundle more often than under independently designed auction mechanisms.

This paper was presented at the Nordic Workshop in Industrial Organization, (NORDIO IV) in Copenhagen, 30-31 May 2003. Comments are welcome.