Yamashita, Takuro and Zeitounlian Sarkisian, Roberto (2021) Large mechanism design with moment-based allocation externality. TSE Working Paper, n. 21-1241, Toulouse, France

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Abstract

In many mechanism design problems in practice, often allocation externality exists (e.g., peer effects in student allocation, and post-license com- petition in oligopoly). Despite the practical importance, mechanism design with allocation externality has not been much explored in the literature, per- haps due to the tractability issue of the problem. In this paper, we propose a simple and tractable model of mechanism design with allocation externality. We characterize the optimal mechanism, which has a very simple form in the sense that it is identified by only a few parameters. This simplicity of the optimal mechanism is also useful to obtain comparative statics results.