The Condominium Problem; Auctions for Substitutes

This paper considers the problem of designing selling procedures for substitutes (like condominium units). I show that oral, ascending auctions for the right to choose are efficient. This is a common type of auction used for the sale of real estate. Efficiency is not optimal from the seller’s viewpoint. An optimal procedure distorts the right-tochoose auction to favor in late rounds bidders whose preferred object has already been sold. This optimal auction is complex. A revenue improving departure from efficiency can be achieved by simply auctioning all the rights to choose before any of them is exerted. This is also a common feature of auctions for the sale of real estate. JEL Classification: D44.