Economics Brown Bag Seminar Series - Bing Liu (The University of Melbourne)

Title: Mechanism Design in the Presence of Allocative Externalities

Abstract: Allocation problems in which an agent’s utility depends on the allocation of the other agents abound in the real world, ranging from the allocation of shelf space in supermarkets and stores in a mall to allocating congestible goods like roads, to networks goods such as two-sided platforms, to the allocation of content to cable TV channels. In this paper, we take a mechanism design approach to allocation problems of this form. Sticking to the independent private value paradigm, we let each agent’s utility function be a function of the allocation and derive the optimal allocation rule that satisfies the incentive compatibility and individual rationality constraints. We apply the approach to congestion effects and to goods with network externalities. Extensions of the model will include multiple buyers and sellers and address the possibility of efficient bilateral trade.