Optimal Hotelling Auctions

About this event

From advertising keywords to spectrum licenses, auctioneers frequently sell horizontally differentiated products simultaneously. For a Hotelling model involving buyers with private information about their locations, we derive the optimal auction for a seller with products for sale at both 0 and 1. We show that as buyers' gross valuations for both products increase, running a Myersonian auction with an optimally chosen reserve price at each location ceases being optimal before these auctions cease being independent. Lottery-augmented auctions—which involve entering some buyers in a non-trivial lottery involving both products—are optimal whenever running independent auctions is not. The optimal selling mechanism can be implemented in dominant strategies using a two-stage clock auction that allows bidders to coarsely express the strength of their preferences for each product.