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The broker-optimal bilateral trading mechanisms with linear contracts. (English) Zbl 1471.91189

Summary: We introduce a linear contract to the bilateral trading model with a broker in [R. B. Myerson and M. A. Satterthwaite, J. Econ. Theory 29, 265–281 (1983; Zbl 0523.90099), Section 5]. Among all the incentive-compatible and individually rational direct bilateral trading mechanisms, we provide a characterization of the broker-optimal direct bilateral trading mechanisms when the buyer makes a non-negative cash payment. In the optimal mechanism, the buyer makes zerocash payment, and shares equity with the seller. This mechanism enables the broker to gain higher profits than that in [loc. cit.]. A dominant strategy implementation is also proposed. We also discuss the optimal mechanism when the buyer is allowed to be subsidized.

MSC:

91B26 Auctions, bargaining, bidding and selling, and other market models

Citations:

Zbl 0523.90099
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References:

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