Endogenous shareholding auctions

Abstract

We introduce endogenous shareholding auctions for production economies where a monopolist must elicit consumer demand in order to determine price and quantity. Each of these auctions has the property that the auction's profit is distributed across the monopolist and the consumers in accordance with ownership shares that are determined over the course of the auction. We characterize this class, and a larger class, on the basis of standard axioms. Finally, we investigate optimal auctions according to both prior-free domination and subjective expected welfare.

In the first version, we used a water system to provide intuition about valvular auctions, but our description of this water system was incorrect due to some inadvertent oversimplifications. This has been fixed: we revised our description of the water system in Section 2, and we revised Figure 2 to illustrate the process in detail across multiple steps