Exclusive versus non-exclusive dealing in auctions with resale

Subir Bose, George Deltas

Research output: Contribution to journalArticlepeer-review

Abstract

We consider a seller who can either sell exclusively through resellers, or allow potential consumers to purchase directly from him. The consumers' willingness to pay is private information. All transactions are in the form of second-price sealed bid auctions. We show that, if the resellers can gain access to a substantially bigger portion of the market than the seller himself, the seller obtains a higher revenue by dealing exclusively through them, i.e., by committing to not sell to any consumer. The result is due to a "winner's curse" effect: the resellers win only if the consumers that they compete against submit lower bids, i.e., if part of their customer base has low valuations. This depresses the resellers' willingness to pay relative to what they would be willing to pay under an exclusive resale contract. Our results do not depend on the presence of transaction costs: exclusive dealing yields strictly higher revenue even when the resellers can market the item at zero cost.

Original languageEnglish (US)
Pages (from-to)1-17
Number of pages17
JournalEconomic Theory
Volume31
Issue number1
DOIs
StatePublished - Apr 1 2007

Keywords

  • Distribution channels
  • Exclusive dealing
  • Market makers

ASJC Scopus subject areas

  • Economics and Econometrics

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