Optimal Auction Design with Aftermarket Cournot Competition

We study an optimal information/mechanism design problem for selling an object to a number of asymmetric, privately informed bidders in which the winning bidder competes with a third party under differentiated Cournot competition afterwards. We show how to decompose the problem into two sub-problems: Bayesian persuasion and standard mechanism design. Full disclosure of the winner's marginal cost emerges as the unique optimal information policy, combined with allocating the auctioned object to the bidder with the highest “virtual surplus.” Bidders' signaling incentives increase the seller's expected revenue and lower discriminatory reserve prices in the optimal mechanism, improving ex post efficiency, measured by the probability of no-sale. © 2024 Published by Elsevier Inc.